ETHICS AND INDEPENDENCE POLICIES

Version 2013.1
ALAS, OPLAS & CO., CPAs – Ethics and Independence Policies

Contents
0 MESSAGE FROM DONNIES T. ALAS 1
1 INTRODUCTION 3
1.1 PURPOSE 3
1.2 APPLICABILITY 3
1.3 AMENDMENTS TO THESE POLICIES REQUIRE APPROVAL 3
1.4 CONSULTATION 3
1.5 ANNUAL CONFIRMATION OF COMPLIANCE WITH THESE POLICIES 3
1.6 POLICY VIOLATIONS AND EXCEPTIONS 4
1.7 DISCIPLINARY ACTION 4
1.8 DEFINITIONS 4
2 FUNDAMENTAL PRINCIPLES OF ETHICS 11
2.1 INTRODUCTION 11
2.2 FUNDAMENTAL PRINCIPLES 11
2.3 PROFESSIONAL APPOINTMENT 18
2.4 CONFLICTS OF INTEREST 21
2.5 SECOND OPINIONS 23
2.6 FEES AND OTHER TYPES OF REMUNERATION 24
2.7 MARKETING PROFESSIONAL SERVICES 26
2.8 GIFTS AND HOSPITALITY 27
2.9 CUSTODY OF CLIENT ASSETS 28
2.10 OBJECTIVITY 29
2.11 OTHER 30
3 POLICIES APPLICABLE TO ASSURANCE ENGAGEMENTS 31
3.2 FINANCIAL INTERESTS 35
3.3 LOANS AND GUARANTEES 37
3.4 BUSINESS RELATIONSHIPS 38
3.5 FAMILY AND PERSONAL RELATIONSHIPS 40
3.6 EMPLOYMENT BY OR SERVICE AS AN OFFICER OR DIRECTOR OF AN
ASSURANCE CLIENT 40
3.7 PROVISION OF NON-ASSURANCE SERVICES TO AN ASSURANCE
CLIENT 43
3.8 FEES AND LITIGATION SITUATIONS INVOLVING ASSURANCE
CLIENTS 52
ALAS, OPLAS & CO., CPAs – Ethics and Independence Policies

4 MAINTENANCE AND USE OF THE FIRM RELATIONSHIP TRACKER 54

4.1 THE FIRM RELATIONSHIP TRACKER LIST 54
4.2 RESPONSIBILITY FOR MAINTAINING THE FIRM RELATIONSHIP
TRACKER 54
4.3 RESPONSIBILITY FOR CONSULTING THE FIRM RELATIONSHIP
TRACKER IN RESPECT OF FINANCIAL, BUSINESS, FAMILY OR
EMPLOYMENT INTERESTS 54
4.4 RESPONSIBILITY FOR CONSULTING THE FIRM RELATIONSHIP
TRACKER IN RESPECT OF CONFLICT OF INTEREST 54
5 ADDITIONAL POLICIES APPLICABLE TO PUBLIC INTEREST ENTITY
AUDIT CLIENTS 55
5.1 APPLICABILITY 55
5.2 ROTATION OF KEY AUDIT PARTNERS 55
5.3 PROVISION OF ACCOUNTING, BOOKKEEPING AND PAYROLL
SERVICES 55
5.4 KEY AUDIT PARTNER AND SENIOR MANAGING PARTNER JOINING AN
AUDIT CLIENT 56
5.5 AUDIT CLIENTS LISTED ON A STOCK EXCHANGE IN ANOTHER
COUNTRY 57
5.6 VALUATION SERVICES 57
5.7 TAXATION SERVICES 57
5.8 INTERNAL AUDIT SERVICES 58
5.9 IT SYSTEMS SERVICES 58
5.10 RECRUITING SERVICES 58
5.11 MATERIALITY OF FEES 58
5.12 AUDIT CLIENTS BECOMING A PUBLIC INTEREST ENTITY 59
6 CONTINUING PROFESSIONAL EDUCATION REQUIREMENTS 61
6.1 NEW EMPLOYEE ORIENTATION 61
6.2 CONTINUING INDEPENDENCE EDUCATION FOR CONTINUING
PROFESSIONAL EMPLOYEES 61
6.3 TRAINING SPECIFIED AS A RESULT OF DISCIPLINARY ACTION 62
7 DISCIPLINARY ACTIONS FOR POLICY VIOLATIONS 63
7.1 DISCIPLINARY ACTIONS FOR INDIVIDUAL VIOLATIONS 63
7.2 EXCEPTION FOR GOOD FAITH VIOLATIONS 63
ALAS, OPLAS & CO., CPAs – Ethics and Independence Policies

7.3 EXCEPTION FOR INADVERTENT VIOLATIONS 63

7.4 DETERMINING THE SEVERITY OF VIOLATIONS 63
7.5 RANGE OF DISCIPLINARY ACTIONS 64
APPENDIX A- REFERENCE SOURCES FOR ETHICS RULES 65
0 Message From Donnies T. Alas

Dear All,

Personal notes of DTA to introduce the Ethics and Independence Policies

Ethics
These policies include rules and guidance on the ethical principles we are required to apply.
The fundamental principles are as follows:

Integrity – we are required to be straightforward and honest in professional and business

relationships.

Objectivity – we must not compromise our professional or business judgment because of bias,
conflict of interest or the undue influence of others.

Professional Competence and Due Care – we are required to maintain professional

knowledge and skill at the level required to ensure that clients or employers receive
competent professional service and to act diligently in accordance with applicable technical
and professional standards when providing professional services.

Confidentiality – we are required to refrain from disclosing outside the firm or employing
organization confidential information acquired as a result of professional and business
relationships without proper and specific authority or unless there is a legal or professional
right or duty to disclose and using confidential information acquired as a result of
professional and business relationships to our personal advantage or the advantage of third
parties.

Professional Behaviour – we are required to comply with relevant laws and regulations and
avoid any action that may bring discredit to the profession. This includes actions which a
reasonable and informed third party, having knowledge of all relevant information, would
conclude negatively affects the good reputation of the profession.

Independence
These policies include rules and guidance on the independence principles we are required to
apply. The fundamental principles are as follows:

Independence of mind - the state of mind that permits the provision of an opinion without
being affected by influences that compromise professional judgement; allowing an individual
to act with integrity and exercise objectivity and professional scepticism.

Independence in appearance - the avoidance of facts and circumstances that are so

significant that a reasonable and informed third party, having knowledge of all relevant
information, including safeguards applied, would reasonably conclude that the integrity,
objectivity or professional scepticism of the Firm, or a member of the assurance team, had
been compromised.

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These policies include guidance on the threats to our ethics and independence, as follows:

Self-interest threats – occur as a result of the financial or other interests we or close family
members may have.

Self-review threats – occur when our previous judgements need to be re-evaluated by us.

Advocacy threats – occur when we promote a position or opinion to the point that subsequent
objectivity may be compromised.

Familiarity threats – may occur when, because of a close relationship, we become too
sympathetic to the interests of others.

Intimidation threats – may occur when we are deterred from acting objectively by threats,
actual or perceived.

Personal note from DTA…

Kind regards,

Donnies T. Alas (CEO, Alas, Oplas & Co., CPAs)

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1 Introduction

1.1 Purpose
The purpose of these policies is to provide reasonable assurance that Alas, Oplas &
Co., CPAs (“AOC” or “the Firm”), its Partners and Professional Employees comply
with the Code of Ethics for Professional Accountants in the Philippines as well as the
ethics rules of:

a) All relevant local professional organisations;

b) Local security exchange regulators; and
c) Other relevant regulatory authorities.

1.2 Applicability
These policies apply to the Firm, Partners and Professional Employees.
Definitions of capitalised terms used in these policies are included in the
Definitions Section. Whenever used herein, any pronoun shall be deemed to
cover all genders and to include both singular and plural. The use of the word
“shall” in this policy imposes a requirement on the individual to comply with the
specific provision in which “shall” has been used unless an exception is permitted
by this policy.

1.3 Amendments to these policies require approval

Any amendments made to these policies must be submitted for review and approval.

1.4 Consultation
Any Partner or Professional Employee who has a question regarding these policies
should consult promptly with the Firm's Partner Responsible for Independence. If the
question requires a significant interpretation of these policies or the ethics rules, the
person being consulted will require the inquirer to submit a memorandum
documenting the question and its resolution or proposed resolution. The person being
consulted will indicate his or her approval and return the documented consultation to
the inquirer.

When unusual circumstances are encountered in which the application of a specific

requirement of this policy would result in a disproportionate outcome or an outcome
that may not be in the public interest, in addition to the consultation noted above,
consultation may be required with the relevant regulator.

1.5 Annual Confirmation of Compliance with these policies

Each Partner and Professional Employee shall annually complete an Independence
Compliance Questionnaire confirming that he or she
a) Has read the Firm's Ethics and Independence policies;
b) Understands their applicability to his or her activities; and
c) Is, and has been for the past year, in compliance with those policies.

Any qualifications to such confirmation shall be fully explained in writing.

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1.6 Policy Violations and Exceptions
Upon becoming aware that a violation involving himself or herself, or a member
of his or her Immediate Family, has or is about to occur, a Partner or
Professional Employee shall immediately report the violation to the Firm's
Partner Responsible for Independence.

Thereafter, the Partner or Professional Employee shall immediately either:

(a) Take the appropriate action to cure or avoid the violation, or
(a) Request that a policy exception be granted

In all cases involving an apparent violation, a Record of Consultation shall be

completed and approved by the Partner Responsible for Independence, in accordance
with the Firm’s consultation process.

Any loss or transaction costs incurred to liquidate an investment, refinance a

loan, etc. to cure or avoid the violation, as well as all related tax costs (or tax
benefits), are the sole responsibility of the Partner or Professional Employee.

1.7 Disciplinary Action

Disciplinary action under the guidelines set forth in Section 9 will be taken against
Partners and Professional Employees who violate these policies or fail to respond to
reasonable requests for confirmation or information.

1.8 Definitions

Acceptable level - A level at which a reasonable and informed third party would be
likely to conclude, weighing all the specific facts and circumstances available to the
professional accountant at that time, that compliance with the fundamental principles
is not compromised.

Affiliate – An affiliate is any of the following:

a) An entity that has direct or indirect control over the Assurance Client, provided
the Assurance Client is material to such entity;
b) An entity with a material direct financial interest in the Assurance Client, provided
the entity has Significant Influence over the Assurance Client;
c) An entity over which the Assurance Client has direct or indirect control;
d) An entity in which the Assurance Client has a material direct financial interest,
provided the Assurance Client has Significant Influence over the entity; or
e) An entity which is under common control with the Assurance Client, provided
both the Assurance Client and the sister entity are material to their parent.

Assurance Client – An assurance Client is an entity in respect of which the Firm

conducts an Assurance Engagement.

Assurance Engagement – An audit or review of financial statements in accordance

with International Standards on Auditing, any engagement performed in accordance
with the International Standards on Assurance Engagements and International
Standards on Review Engagements issued by the International Auditing & Assurance
Standards Board, or any other engagement performed in accordance with country
specific standards for auditing or other assurance services.

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Assurance Team – The assurance team consists of the following individuals:
 All professionals participating in the assurance engagement; and
 All others within the Firm who can directly influence the outcome of the
assurance engagement, including:
a) Those who supervise or have direct management responsibility for the
assurance engagement;
b) Those who provide consultation regarding technical or industry specific issues,
transactions or events for the assurance engagement;
c) Those who provide quality control for the assurance engagement; and
d) Those who provide direct supervisory, management, compensation or other
oversight of the lead assurance engagement Partner, including those at all
successively senior levels through to the Firm’s Managing Partner or
equivalent.

Audit Client – An entity in respect of which the Firm conducts an audit engagement.
When the client is a listed entity, audit client will always include its related entities.
When the audit client is not a listed entity, audit client includes those related entities
over which the client has direct or indirect control.

Audit Committee – The committee of the Board of Directors, or if there is no such

committee, the entire Board of Directors, that is responsible for the oversight of the
entity’s financial reporting and audit processes.

Audit Engagement – A reasonable assurance engagement in which a professional

accountant in public practice expresses an opinion whether financial statements are
prepared, in all material respects (or give a true and fair view or are presented fairly,
in all material respects,), in accordance with an applicable financial reporting
framework, such as an engagement conducted in accordance with Philippine
Standards on Auditing. This includes a Statutory Audit, which is an audit required by
legislation or other regulation.

Board of Directors – The Board of Directors or other governing body of an entity or

organisation.

Chief Executive Officer – The Chief Executive Officer of Alas, Oplas & Co., CPAs.

Client – Any individual or entity for which the Firm performs services.

Close Family –Parents, siblings and non-dependent children.

Commission – Compensation for recommending or referring any product or service

to be provided by another party.

Contingent Fee - A fee calculated on a predetermined basis relating to the outcome

or result of a transaction or the result of the work performed. Risk premium billings,
value billings or fees fixed by courts or other public authorities or, in tax matters, if

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determined based on the results of judicial proceedings or the findings of
governmental agencies, are not regarded as being contingent.

Covered Person – Covered persons include:

a) The assurance team;
b) Other Client service personnel;
c) Any other Partner in the office of the Firm in which the Lead engagement Partner
primarily practices in connection with the assurance engagement; and
d) The immediate families of the aforementioned individuals.

Direct Financial Interest – A financial interest owned directly by and under the
control of an individual, including those managed on a discretionary basis by others,
or beneficially owned through a collective investment vehicle, estate, trust or other
intermediary; over which the individual or entity has control.

Directors and Officers – Persons charged with the governance of an entity,

regardless of their titles, which vary from jurisdiction to jurisdiction.

Employee Benefit Plan – All pension, retirement, savings, health welfare and similar
plans sponsored and controlled by the Firm for the benefit of its Partners and
Employees.

Employees – A person, including Professional Employees, employed by the Firm.

Engagement team - All partners and staff performing the engagement, and any
individuals engaged by the firm or a network firm who perform assurance procedures
on the engagement. This excludes external experts engaged by the firm or a network
firm.

External expert - An individual (who is not a partner or a member of the professional

staff, including temporary staff, of the firm or a network firm) or organization
possessing skills, knowledge and experience in a field other than accounting or
auditing, whose work in that field is used to assist the professional accountant in
obtaining sufficient appropriate evidence.

Financial Interest – An interest in equity or other security, debenture, loan or other

debt instrument of an entity, including rights and obligations to acquire such an
interest and derivatives directly related to that interest.

Immaterial – With respect to a Partner or Professional Employee, an amount that is

less than 5% of the net worth of the affected individual, together with that of his or
her spouse or spousal equivalent.

Inadvertent - A policy violation that results from actions taken by persons other than
the Partner or Professional Employee, or a member of his or her Immediate Family
(e.g., financial interests acquired by unsolicited gifts or inheritance).

Immediate Family – Spouse, spousal equivalent and dependants.

Independence Compliance Questionnaire – The compliance questionnaire that each

Partner and Professional Employee is required to complete upon employment and

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annually thereafter, confirming compliance with the Firm’s Ethics and Independence
Policies and reporting certain additional information regarding financial and family
relationships.

Indirect Financial Interest – Any financial interest beneficially owned through a

collective investment vehicle, estate, trust or other intermediary over which the
beneficial owner has no control or ability to influence investment decisions (e.g., a
mutual fund, common trust fund or similar investment vehicle, but specifically
excluding a blind trust).

Intentional - An action taken by a Partner or Professional Employee, or a member of

his or her Immediate Family that the Partner, Professional Employee or family
member knew or should have known constituted a policy violation.

Internal Audit Services – Assistance in the performance of a Client’s internal audit

activities or outsourcing of the activities.

Investment Company Complex – The investment company (mutual fund), the fund's
investment adviser, all other funds managed by the fund's investment adviser and any
other entity (e.g., broker-dealer, trust company or bank) affiliated with the fund's
investment adviser through parent, subsidiary or common control relationships.

Key Audit Partner - The lead engagement partner, the individual responsible for the
engagement quality control review, and other audit partners, if any, on the
engagement team who make key decisions or judgments on significant matters with
respect to the audit of the financial statements on which the firm will express an
opinion. Depending upon the circumstances and the role of the individuals on the
audit, “other audit partners” may include, for example, audit partners responsible for
significant subsidiaries or divisions.

Lead Engagement Partner – The Partner responsible for signing the report on the
Client’s financial statements or consolidated financial statements, or the report on the
financial statements of any entity whose financial statements form a part of the
consolidated financial statements.

Letter of Reprimand - A letter issued to a violator setting forth:

a) The violation and the action taken to eliminate the violation; and
b) Demanding future compliance and advising the violator that the violation will be
considered in determining the disciplinary action applicable to future violations.

Letter of Required Corrective Action - A letter issued to a violator setting forth:

a) The violation and the action taken or to be taken to eliminate the violation;
b) Counselling, training, probationary and monitoring requirements and any resulting
sanctions; and
c) Demanding future compliance and advising that the violation will be considered in
determining the disciplinary action applicable to future violations.

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Litigation Support Services – Acting as an expert witness, calculating estimated
damages or other amounts that might become receivable or payable as the result of
litigation or other legal dispute, and assistance with document management and
retrieval in relation to a dispute or litigation.

Listed Entity - Any entity whose shares or securities are quoted or listing by a
recognised stock exchange, or are marketed under the regulations of a recognised
stock exchange or other equivalent body.

Loan - A financial transaction, the characteristics of which generally include, but are
not limited to, an agreement that provides for repayment terms and a rate of interest.
A loan includes, but is not limited to, a guarantee of a loan, a letter of credit, a line of
credit, or a loan commitment.

Managing Partner - The chief executive of the Firm.

Material – With respect to an individual, any amount in excess of 5% of the net

worth of the affected individual, together with that of his or her spouse or spousal
equivalent. With respect to an entity, any such amount in excess of 1% of revenues or
assets, whichever is greater. This definition is relevant when considering direct or
indirect financial interests as required under Sections 3.2, 3.3 and 3.4 of these
policies.

Office – A distinct subgroup of the Firm, whether organised on geographical or

practice lines, in which the Lead engagement Partner practices in connection with the
assurance engagement. (Note – The Office in which an engagement partner practices
in connection with the financial statement audit is not necessarily the office to which
that partner is assigned. Accordingly, when the engagement partner is located in a
different office from that of the other members of the assurance team, judgement
should be used to determine which office the partner practices in connection with that
audit.)

Other Client Service Personnel – Partners and managerial Employees who provide
non-assurance services to an assurance Client, except those whose time involvement is
clearly insignificant.

Partner - All active and retired Partners of the Firm who:

a) Participate in the Firm's business or professional activities, whether or not
compensated for his or her participation; or
b) Appear to participate in the activities of or be associated with the Firm.

Partner Responsible for Independence - A senior-level Partner, designated by the

Managing Partner as responsible for overseeing the adequate functioning of the Ethics
and Independence Policies and the related independence consultation processes within
the Firm.

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Position to Exert Direct and Significant Influence over the Subject Matter of an
Assurance Engagement – With respect to engagements to audit or review financial
statements, an individual who has:
a) Primary responsibility for significant accounting functions that support material
components of the financial statements;
b) Primary responsibility for preparation of the financial statements; or
c) The ability to exercise influence over the contents of the financial statements,
including directors, officers and personnel who supervise or monitor those with
significant accounting or financial statement preparation responsibilities.

With respect to other assurance engagements, an individual who has comparable

responsibility with respect to the subject matter of the assurance engagement or
management’s assertions regarding the subject matter.

Professional Employee – All non-Partner Employees of the Firm who provide

Professional Services to Clients.

Professional Services – services requiring accounting or related skills performed by a

Partner or Professional Employee including (but not limited to) accounting, auditing,
taxation, management consulting and financial management services.

Prohibited Securities List – The list of Audit Clients that are listed with the
Philippine Stock Exchange maintained and distributed to or otherwise made available
to all Partners and Professional Employees of the Firm.

Public Interest Entity –

(a) listed entity; and
(b) an entity:
(i) defined by regulation or legislation as a public interest entity; or
(ii) for which the audit is required by regulation or legislation to be
conducted in compliance with the same independence requirements that apply
to the audit of listed entities. Such regulation may be promulgated by any
relevant regulator, including an audit regulator.

Review Client - An entity in respect of which a firm conducts a review engagement.

Review engagement - An assurance engagement, conducted in accordance with

Philippine Standards on Review Engagements or equivalent, in which a professional
accountant in public practice expresses a conclusion on whether, on the basis of the
procedures which do not provide all the evidence that would be required in an audit,
anything has come to the accountant’s attention that causes the accountant to believe
that the financial statements are not prepared, in all material respects, in accordance
with an applicable financial reporting framework.

Review team –
(a) All members of the engagement team for the review engagement; and
(b) All others within a firm, who can directly influence the outcome of the review
engagement, including:
(i) Those who recommend the compensation of, or who provide direct
supervisory, management or other oversight of the engagement partner in

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 connection with the performance of the review engagement including those at
all successively senior levels above the engagement partner through to the
individual who is the firm’s Senior or Managing Partner (Chief Executive or
equivalent);
(ii) Those who provide consultation regarding technical or industry
specific issues, transactions or events for the engagement; and
(iii)Those who provide quality control for the engagement, including those who
perform the engagement quality control review for the engagement; and
(c) All those within a network firm who can directly influence the outcome of the
review engagement.

Significant Influence – The ability to exercise significant influence over an

investee’s operating and financial policies, which can be indicated in various ways,
including representation on the investee’s board of directors, participation in its
policymaking processes, or the investee’s dependency on the investor’s technological
or managerial resources. Generally, an investor that holds 20% or more of the voting
interests of an investee is presumed to have the ability to exercise significant
influence, while investors holding less than a 20% voting interest are presumed not to
have the ability to exercise significant influence. However, these presumptions can be
overcome by credible evidence to the contrary.

Special purpose financial statements - Financial statements prepared in accordance

with a financial reporting framework designed to meet the financial information needs
of specified users.

Subject Matter of an Assurance Engagement – With respect to engagements to

audit or review financial statements, the financial statements themselves. With
respect to other assurance engagements, the matters with respect to which the Firm
provides assurance regarding its presentation and related management assertions.

Those Charged With Governance - The persons with responsibility for overseeing
the strategic direction of the entity and obligations related to the accountability of the
entity. This includes overseeing the financial reporting process.

Unintentional - An action taken by a Partner or Professional Employee, his or her

spouse (or spousal equivalent) or dependants that constituted a policy violation, but
that was not known to be a policy violation by the Partner or Professional Employee,
and with respect to which the Partner or Professional Employee was not negligent in
not knowing of the action or that the action constituted a policy violation.

Valuation Services – A valuation comprises the making of assumptions with regard

to future developments, the application of certain methodologies and techniques, and
the combination of both in order to compute a certain value, or range of values, for an
asset, a liability or for a business as a whole.

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2 Fundamental Principles of Ethics

2.1 Introduction

Partners and Professional Employees are required to comply with the Code of
Ethics for Professional Accountants in the Philippines. The Code of Ethics for
Professional Accountants establishes the fundamental principles of professional
ethics for accountants and provides a conceptual framework for applying those
principles.

Partners and Professional Employees are required to apply these principles and
conceptual framework to identify threats to compliance with the fundamental
principles and implement safeguards where appropriate.

2.2 Fundamental Principles

The Code of Ethics for Professional Accountants in the Philippines defines the
following fundamental principles:

2.2.1 Integrity
All Partners and Professional Employees are required to be straightforward and
honest in professional and business relationships. Integrity also implies fair
dealing and truthfulness.

Partners and Professional Employees shall not be associated with reports,

returns, communications or other information where they believe that the
information:
a) Contains a materially false or misleading statement;
b) Contains statements or information furnished recklessly; or
c) Omits or obscures information required to be included where such omission
or obscurity would be misleading.

When a Partner or Professional Employee becomes aware that the Partner or

the Firm has been associated with such information, they shall take steps to be
disassociated from that information.

Partners and Professional Employees will not be considered to be in breach of

the above paragraph if they provide a modified report.

2.2.2 Objectivity
All Partners and Professional Employees must not compromise their professional
or business judgment because of bias, conflict of interest or the undue influence
of others.

Partners and Professional Employees may be exposed to situations that may

impair objectivity. It is impracticable to define and prescribe all such situations.
Relationships that bias or unduly influence the professional judgment of the
Partners and Professional Employees shall be avoided.

2.2.3 Professional Competence and Due Care

All Partners and Professional Employees are required to apply the following

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 obligations in respect of the principle of professional competence and due care:
a) To maintain professional knowledge and skill at the level required to ensure
that Clients or employers receive competent professional service; and
b) To act diligently in accordance with applicable technical and professional
standards when providing Professional Services.

Competent professional service requires the exercise of sound judgment in applying

professional knowledge and skill in the performance of such service. Professional
competence may be divided into two separate phases:
a) Attainment of professional competence; and
b) Maintenance of professional competence.

The maintenance of professional competence requires a continuing awareness and an

understanding of relevant technical professional and business developments.
Continuing professional development develops and maintains the capabilities that
enable a professional accountant to perform competently within the professional
environments.

Diligence encompasses the responsibility to act in accordance with the requirements

of an assignment, carefully, thoroughly and on a timely basis.

All Partners and Professional Employees are required to take steps to ensure
that those working under their authority in a professional capacity have
appropriate training and supervision.

Where appropriate, all Partners and Professional Employees are required to

make Clients, employers or other users of the Professional Services aware of
limitations inherent in the services to avoid the misinterpretation of an
expression of opinion as an assertion of fact.

2.2.4 Confidentiality
All Partners and Professional Employees are required to refrain from:
a) Disclosing outside the firm or employing organization confidential
information acquired as a result of professional and business relationships
without proper and specific authority or unless there is a legal or professional
right or duty to disclose; and
b) Using confidential information acquired as a result of professional and
business relationships to their personal advantage or the advantage of third
parties.

All Partners and Professional Employees shall not use non-public (insider)
information or other confidential Client information obtained in the course of a
the Firm's business for direct or indirect personal financial benefit.

All Partners and Professional Employees are required to maintain confidentiality

even in a social environment and shall be alert to the possibility of inadvertent
disclosure, particularly in circumstances involving long association with a
business associate or with Close Family or Immediate Family.

All Partners and Professional Employees are required to maintain confidentiality

of information disclosed by a prospective Client or employer.

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All Partners and Professional Employees are required to consider the need to
maintain confidentiality of information within the firm or employing
organization.

All Partners and Professional Employees are required to take all reasonable
steps to ensure that staff under their control and persons from whom advice and
assistance is obtained respect the professional accountant’s duty of
confidentiality.

The need to comply with the principle of confidentiality continues even after the end
of relationships between Partners and Professional Employees and a Client or
employer. When a Partner or Professional Employee changes employment or acquires
a new Client, they are entitled to use prior experience.

The Partner or Professional Employee shall not, however, use or disclose any
confidential information either acquired or received as a result of a professional
or business relationship.

The following are circumstances where all Partners and Professional Employees are or
may be required to disclose confidential information or when such disclosure may be
appropriate:

a) Disclosure is permitted by law and is authorized by the Client or the employer;

b) Disclosure is required by law, for example:
(i) Production of documents or other provision of evidence in the course of legal
proceedings; or
(ii) Disclosure to the appropriate public authorities of infringements of the law
that come to light; and
c) There is a professional duty or right to disclose, when not prohibited by law:
(i) To comply with the quality review of a member body or professional body;
(ii) To respond to an inquiry or investigation by a member body or regulatory
body;
(iii) To protect the professional interests of a professional accountant in
legal proceedings; or
(iv)To comply with technical standards and ethics requirements.

In deciding whether to disclose confidential information, all Partners and Professional

Employees are required to consider the following points:

(a) Whether the interests of all parties, including third parties whose interests may be
affected, could be harmed if the Client or employer consents to the disclosure of
information by the professional accountant;
(b) Whether all the relevant information is known and substantiated, to the extent it is
practicable; when the situation involves unsubstantiated facts, incomplete
information or unsubstantiated conclusions, professional judgment shall be used in
determining the type of disclosure to be made, if any; and
(c) The type of communication that is expected and to whom it is addressed; in
particular, professional accountants shall be satisfied that the parties to whom the
communication is addressed are appropriate recipients.

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2.2.5 Professional Behaviour
All Partners and Professional Employees are required to comply with relevant
laws and regulations and avoid any action that may bring discredit to the
profession. This includes actions which a reasonable and informed third party,
weighing all the specific facts and circumstances available to the Partner and
Professional Employee at that time, would be likely to conclude adversely affects
the good reputation of the profession.

All Partners and Professional Employees must not bring the profession into
disrepute when marketing and promoting themselves and their work and are
required to be honest and truthful and shall not:
a) Make exaggerated claims for the services they are able to offer, the qualifications
they possess, or experience they have gained; or
b) Make disparaging references or unsubstantiated comparisons to the work of
others.

2.2.6 Conceptual Framework Approach

All Partners and Professional Employees are required to evaluate any threats to
compliance with the fundamental principles when the professional accountant
knows, or could reasonably be expected to know, of circumstances or
relationships that may compromise compliance with the fundamental principles.

All Partners and Professional Employees are required to take qualitative as well
as quantitative factors into account when considering the significance of a threat.
If a professional accountant cannot implement appropriate safeguards, the
professional accountant shall decline or discontinue the specific professional
service involved, or where necessary resign from the Client (in the case of a
professional accountant in public practice) or the employing organization (in the
case of a professional accountant in business).

A Partner or Professional Employee of the Firm may inadvertently violate a

provision of these policies or the Code of Ethics for Professional Accountants in
the Philippines. Such an inadvertent violation, depending on the nature and
significance of the matter, may not compromise compliance with the
fundamental principles provided, once the violation is discovered, the violation is
corrected promptly and any necessary safeguards are applied. All Partners and
Professional Employees are required to report all violations of the Code of Ethics
for Professional Accountants to Partner Responsible for Independence.

Part B of the Code of Ethics for Professional Accountants in the Philippines describes
how the conceptual framework applies in certain situations in public practice. Part B
does not describe all the circumstances and relationships encountered by a
professional accountant in public practice that create or may create threats to
compliance with the fundamental principles. Therefore, the professional accountant in
public practice is encouraged to be alert for such circumstances and relationships.

A professional accountant in public practice shall not knowingly engage in any

business, occupation, or activity that impairs or might impair integrity, objectivity or
the good reputation of the profession and as a result would be incompatible with the
fundamental principles.

14
2.2.7 Threats and Safeguards
Compliance with the fundamental principles may potentially be threatened by a broad
range of circumstances. Many threats fall into the following categories:
a) Self-interest threats, which may occur as a result of the financial or other interests
of a Partners or Professional Employees of the Firm or of Immediate Family or
Close Family;
b) Self-review threats, which may occur when a previous judgment needs to be re-
evaluated by the Partners or Professional Employees of the Firm responsible for
that judgment;
c) Advocacy threats, which may occur when a Partners or Professional Employees of
the Firm promote a position or opinion to the point that subsequent objectivity
may be compromised;
d) Familiarity threats, which may occur when, because of a close relationship, a
Partners or Professional Employees of the Firm becomes too sympathetic to the
interests or work of others; and
e) Intimidation threats, which may occur when Partners or Professional Employees
of the Firm may be deterred from acting objectively by threats, actual or
perceived.

The evaluation of the significance of any threats to independence and the safeguards
necessary to reduce any threats to an acceptable level, shall take into account the
public interest. Certain entities may be of significant public interest because, as a
result of their business, their size or their corporate status they have a wide range of
stakeholders. Examples of such entities may include listed companies, credit
institutions, insurance companies and pension funds.

Safeguards that may eliminate or reduce such threats to an acceptable level fall into
two broad categories:
a) Safeguards created by the profession, legislation or regulation; and
b) Safeguards in the work environment.

Safeguards created by the profession, legislation or regulation include, but are not
restricted to:
 Educational, training and experience requirements for entry into the profession.
 Continuing professional development requirements.
 Corporate governance regulations.
 Professional standards.
 Professional or regulatory monitoring and disciplinary procedures.
 External review by a legally empowered third party of the reports, returns,
communications or information produced by Partners or Professional Employees
of the Firm.

Certain safeguards may increase the likelihood of identifying or deterring unethical

behaviour. Such safeguards, which may be created by the accounting profession,
legislation, regulation or an employing organization, include, but are not restricted to:
 Effective, well publicized complaints systems operated by the employing
organization, the profession or a regulator, which enable colleagues, employers
and members of the public to draw attention to unprofessional or unethical
behaviour.

15
  An explicitly stated duty to report breaches of ethical requirements.

The nature of the safeguards to be applied will vary depending on the circumstances.
In exercising professional judgment, Partners or Professional Employees of the Firm
shall consider what a reasonable and informed third party, having knowledge of all
relevant information, including the significance of the threat and the safeguards
applied, would conclude to be unacceptable.

2.2.8 Ethical Conflict Resolution

In evaluating compliance with the fundamental principles, all Partners and
Professional Employees may be required to resolve a conflict in the application of
fundamental principles.

When initiating either a formal or informal conflict resolution process, all Partners
and Professional Employees shall consider the following, either individually or
together with others, as part of the resolution process:
a) Relevant facts;
b) Ethical issues involved;
c) Fundamental principles related to the matter in question;
d) Established internal procedures; and
e) Alternative courses of action.

Having considered these issues, all Partners and Professional Employees are
required to determine the appropriate course of action that is consistent with the
fundamental principles identified. All Partners and Professional Employees shall
also weigh the consequences of each possible course of action. If the matter
remains unresolved, all Partners and Professional Employees are required to
consult with the Partner Responsible for Independence for help in obtaining
resolution.

Where a matter involves a conflict with, or within, an organization, all Partners

and Professional Employees are required to also consider consulting with those
charged with governance of the organization, such as the board of directors or
the audit committee.

It may be in the best interests of the all Partners and Professional Employees to
document the substance of the issue and details of any discussions held or
decisions taken, concerning that issue.

If a significant conflict cannot be resolved, Partners and Professional Employees may

wish to obtain professional advice from the relevant professional body or legal
advisors, and thereby obtain guidance on ethical issues without breaching
confidentiality. For example, Partners and Professional Employees may have
encountered a fraud, the reporting of which could breach their responsibility to respect
confidentiality. Partners and Professional Employees shall consider obtaining legal
advice to determine whether there is a requirement to report.

16
If, after exhausting all relevant possibilities, the ethical conflict remains unresolved,
Partners and Professional Employees shall, where possible, refuse to remain
associated with the matter creating the conflict. Partners and Professional Employees
may determine that, in the circumstances, it is appropriate to withdraw from the
engagement team or specific assignment, or to resign altogether from the engagement,
the firm or the employing organization.

17
2.3 Professional Appointment

2.3.1 Client Acceptance

Before accepting a new Client relationship, all Partners and Professional
Employees are required to consider whether acceptance would create any threats
to compliance with the fundamental principles. Potential threats to integrity or
professional behaviour may be created from, for example, questionable issues
associated with the Client (its owners, management and activities).

Client issues that, if known, could threaten compliance with the fundamental
principles include, for example, Client involvement in illegal activities (such as
money laundering), dishonesty or questionable financial reporting practices.

The significance of any threats shall be evaluated. Application of safeguards is

required, when necessary, to eliminate threats or reduce them to an acceptable level.

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.

Where it is not possible to reduce the threats to an acceptable level, all Partners and
Professional Employees are required to decline to enter into the Client relationship.

Acceptance decisions shall be periodically reviewed for recurring Client engagements.

2.3.2 Engagement Acceptance

All Partners and Professional Employees are required to agree to provide only
those services that the professional accountant in public practice is competent to
perform. Before accepting a specific Client engagement, a professional
accountant in public practice shall consider whether acceptance would create
any threats to compliance with the fundamental principles. For example, a self-
interest threat to professional competence and due care is created if the
engagement team does not possess, or cannot acquire, the competencies
necessary to properly carry out the engagement.

All Partners and Professional Employees are required to evaluate the

significance of identified threats. The application of safeguards is required, as
necessary, to eliminate them or reduce them to an acceptable level. Such
safeguards may include:
• Acquiring an appropriate understanding of the nature of the 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.
• Complying with quality control policies and procedures designed to provide

18
 reasonable assurance that specific engagements are accepted only when they
can be performed competently.

When all Partners and Professional Employees intend to rely on the advice or
work of an expert, they are required to evaluate whether such reliance is
warranted. Partners and Professional Employees are required to consider factors
such as reputation, expertise, and resources available and applicable professional
and ethical standards. Such information may be gained from prior association
with the expert or from consulting others.

2.3.3 Changes in a Professional Appointment

All Partners and Professional Employees who are asked to replace another
professional accountant in public practice, or who are considering tendering for
an engagement currently held by another professional accountant in public
practice, shall 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.

The significance of the threats shall be evaluated. Depending on the nature of the
engagement, this may require direct communication with the existing accountant to
establish the facts and circumstances behind the proposed change so that Partners and
Professional Employees can decide whether it would be appropriate to accept the
engagement. For example, the apparent reasons for the change in appointment may
not fully reflect the facts and may indicate disagreements with the existing accountant
that may influence the decision as to whether to accept the appointment.

An existing accountant is bound by confidentiality. The extent to which the Partners

and Professional Employees can and shall discuss the affairs of a Client with a
proposed accountant will depend on the nature of the engagement and on:

a) Whether the Client’s permission to do so has been obtained; or

b) The legal or ethical requirements relating to such communications and disclosure,
which may vary by jurisdiction.

In the absence of specific instructions by the Client, an existing accountant shall not
ordinarily volunteer information about the Client’s affairs.

The application of safeguards is required, when necessary, to eliminate threats or

reduce them to an acceptable level.

Such safeguards may include:

• Discussing the Client’s affairs fully and freely with the existing accountant;
• Asking the existing accountant to provide known 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;
• When replying to requests to submit tenders, stating in the tender that, before
accepting the engagement, contact with the existing accountant will be requested

19
 so that inquiries may be made as to whether there are any professional or other
reasons why the appointment should not be accepted.

All Partners and Professional Employees will ordinarily need to obtain the
Client’s permission, preferably in writing, to initiate discussion with an existing
accountant. Once that permission is obtained, the existing accountant should
comply with relevant legal and other regulations governing such requests. Where
the existing accountant provides information, it should be provided honestly and
unambiguously. 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 inquiries of third
parties or background investigations on senior management or those charged
with governance of the Client.

Where the threats cannot be eliminated or reduced to an acceptable level

through the application of safeguards, all Partners and Professional Employees
are required to, unless there is satisfaction as to necessary facts by other means,
decline the engagement.

Partners and Professional Employees may be asked to undertake work that is

complementary or additional to the work of the existing accountant. Such
circumstances may give rise to potential threats to professional competence and due
care resulting from, for example, a lack of or incomplete information. Safeguards
against such threats include notifying the existing accountant of the proposed work,
which would give the existing accountant the opportunity to provide any relevant
information needed for the proper conduct of the work.

20
2.4 Conflicts of Interest
All Partners and Professional Employees are required to take reasonable steps to
identify circumstances that could pose a conflict of interest. Such circumstances
may give rise to threats to compliance with the fundamental principles. For
example, a threat to objectivity may be created when Partners and Professional
Employees compete directly with a Client or have a joint venture or similar
arrangement with a major competitor of a Client. A threat to objectivity or
confidentiality may also be created when Partners and Professional Employees
perform 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.

Partners and Professional Employees are required to evaluate the significance of

any threats. Evaluation includes considering, before accepting or continuing a
Client relationship or specific engagement, whether Partners and Professional
Employees have any business interests or relationships with the Client or a third
party that could give rise to threats. The application of safeguards is required,
when necessary, to eliminate threats or reduce them to an acceptable level.

Depending upon the circumstances giving rise to the conflict, safeguards shall
ordinarily include the Partners and Professional Employees:
a) 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
b) Notifying all known relevant parties that the Partners and/or Professional
Employees of the Firm are acting for two or more parties in respect of a matter
where the irrespective interests are in conflict, and obtaining their consent to so
act; or
c) Notifying the Client that the Partners and Professional Employees do 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.

The following additional safeguards shall also be considered:

a) The use of separate engagement teams; and
b) Procedures to prevent access to information (e.g., strict physical separation of such
teams, confidential and secure data filing); and
c) Clear guidelines for members of the engagement team on issues of security and
confidentiality; and
d) The use of confidentiality agreements signed by Professional Employees and
Partners of the Firm; and
e) Regular review of the application of safeguards by a senior individual not
involved with relevant Client engagements.

Where a conflict of interest poses a threat to one or more of the fundamental

principles, including objectivity, confidentiality or professional behaviour, that
cannot be eliminated or reduced to an acceptable level through the application of
safeguards, Partners and Professional Employees are required to conclude that it
is not appropriate to accept a specific engagement or that resignation from one
or more conflicting engagements is required.

Where Partners and Professional Employees have requested consent from a

Client to act for another party (which may or may not be an existing Client) in

21
respect of a matter where the respective interests are in conflict and that consent
has been refused by the Client, then they must not continue to act for one of the
parties in the matter giving rise to the conflict of interest.

22
2.5 Second Opinions
Situations where Partners and Professional Employees are 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, or is based
on inadequate evidence. The significance of the threat will depend on the
circumstances of the request and all the other available facts and assumptions relevant
to the expression of a professional judgment.

When asked to provide such an opinion, all Partners and Professional Employees
are required to evaluate the significance of the threats. The application of
safeguards is required, when necessary, to eliminate threats or reduce them to an
acceptable level. Such 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, all Partners and Professional Employees are required
consider whether, taking all the circumstances into account, it is appropriate to
provide the opinion sought.

23
2.6 Fees and Other Types of Remuneration
When entering into negotiations regarding Professional Services, all Partners
and Professional Employees may quote whatever fee deemed to be appropriate.
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 threats to
compliance with the fundamental principles arising from the level of fees quoted.
For example, a self-interest threat to professional competence and due care is
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
for that price.

The significance of such threats will depend on factors such as the level of fee quoted
and the services to which it applies. In view of these potential threats, safeguards shall
be considered and applied as necessary to eliminate them or reduce them to an
acceptable level. 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 qualified staff to the task.

Contingent fees are widely used for certain types of non-assurance engagements. They
may, however, give rise to threats to compliance with the fundamental principles in
certain circumstances. They 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.
• Whether the outcome or result of the transaction is to be reviewed by an
independent third party.

The significance of such threats shall be evaluated by all Partners and

Professional Employees. The application of safeguards is required, when
necessary, to eliminate threats or reduce them to an acceptable level. Such
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 of remuneration.
• Quality control policies and procedures.
• Review by an objective third party of the work performed by the professional
accountant in public practice.

In certain circumstances, the Firm may receive a referral fee or commission relating to

24
a Client. For example, where the Firm does not 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. The Firm 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.

The Firm may also pay a referral fee to obtain a Client, for example, where the Client
continues as a Client of another professional accountant in public practice but requires
specialist 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.

The Firm shall not pay or receive a referral fee or commission, unless the Firm
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.
• 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.

25
2.7 Marketing Professional Services
When the Firm solicits new work through advertising or other forms of marketing,
there may be potential threats to compliance with the fundamental principles. For
example, a self-interest threat to compliance with the principle of professional
behaviour is created if services, achievements or products are marketed in a way that
is inconsistent with that principle.

The Firm shall not bring the profession into disrepute when marketing
Professional Services. The Firm shall be honest and truthful and shall not:
• Make exaggerated claims for services offers, qualifications possessed or
experience gained; or
• Make disparaging references to unsubstantiated comparisons to the work of
another.

If the Firm is in doubt whether a proposed form of advertising or marketing is

appropriate, the Firm shall consult with the relevant professional body.

26
2.8 Gifts and Hospitality
Partners and Professional Employees, or Immediate Family members or Close Family
members, may be offered gifts and hospitality from a Client. Such an offer ordinarily
gives rise to threats to compliance with the fundamental principles. For example, self-
interest threats to objectivity may be created if a gift from a Client is accepted;
intimidation threats to objectivity may result from the possibility of such offers being
made public.

The significance of such threats will depend on the nature, value and intent behind the
offer. Where gifts or hospitality which a reasonable and informed third party, having
knowledge of all relevant information, would consider of an acceptable level are made
Partners and Professional Employees of the Firm may conclude that the offer is made
in the normal course of business without the specific intent to influence decision
making or to obtain information. In such cases, the Partners and Professional
Employees may generally conclude that there is no significant threat to compliance
with the fundamental principles.

The application of safeguards is required, when necessary, to eliminate threats or

reduce them to an acceptable level. When the threats cannot be eliminated or
reduced to an acceptable level through the application of safeguards, Partners
and Professional Employees shall not accept such an offer.

A Partner or Professional Employee shall not accept gifts (including indirect

personal benefits) from a Client or any of its Affiliates except as noted in the
paragraph below. Indirect personal benefits (e.g., payment of travel expenses for
the Partner's or Professional Employee's spouse in connection with out-of-town
business meetings, complimentary use of the Client's vacation home, free ride on
the Client's aeroplane for other than business purposes, etc.) are considered gifts
for the purposes of this policy.

Acceptance of token gifts and nominal indirect personal benefits, particularly of the
types that are frequently reciprocated, such as tickets to the theatre or sporting events,
dinner or other common forms of entertainment, are not prohibited.

27
2.9 Custody of Client Assets
All Partners and Professional Employees shall 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 or regulatory duties imposed on them in holding such
assets.

The holding of Client assets creates threats to compliance with the fundamental
principles; for example, there is a self-interest threat to professional behaviour
and may be a self-interest threat to objectivity arising from holding Client assets.
To safeguard against such threats, all Partners and Professional Employees
entrusted with money (or other assets) belonging to others shall:

a) Keep such assets separately from personal or firm assets;

b) Use such assets only for the purpose for which they are intended;
c) 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
d) Comply with all relevant laws and regulations relevant to the holding of and
accounting for such assets.

In addition, all Partners and Professional Employees shall be aware of threats to

compliance with the fundamental principles through association with such assets,
for example, if the assets were found to derive from illegal activities, such as
money laundering. As part of Client and engagement acceptance procedures for
such services, all Partners and Professional Employees shall make appropriate
inquiries about the source of such assets and shall consider their legal and
regulatory obligations. They may also consider seeking legal advice.

28
2.10 Objectivity
All Partners and Professional Employees shall consider when providing any
professional service whether there are threats to compliance with the
fundamental principle of objectivity resulting from having interests in, or
relationships with, a Client or directors, officers or employees. For example, a
familiarity threat to objectivity may be created from a family or close personal
or business relationship.

All Partners and Professional Employees who provide an assurance service are
required to be independent of the assurance Client. Independence of mind and in
appearance is necessary to enable the Partners and Professional Employees to
express a conclusion, and be seen to express a conclusion, without bias, conflict of
interest or undue influence of others.

The existence of threats to objectivity when providing any professional service will
depend upon the particular circumstances of the engagement and the nature of the
work that the Partners or Professional Employees of the Firm are performing.

All Partners and Professional Employees shall evaluate the significance of

identified threats. The application of safeguards is required, when necessary, to
eliminate threats or reduce them to an acceptable level. Such safeguards may
include:

• Withdrawing from the engagement team.

• Supervisory procedures.
• Terminating the financial or business relationship giving rise to the threat.
• Discussing the issue with higher levels of management within the firm.
• Discussing the issue with those charged with governance of the Client.

29
2.11 Other
The Firm, Partners and Professional Employees are encouraged to carry out
business with Clients and their Affiliates as a normal customer in the ordinary
course of the Client or Affiliate's business. The Firms, Partners and Professional
Employees shall not buy goods, property or services from a Client or its
Affiliates except under arm’s length procedures and terms.

No Partner or Professional Employee shall participate in an Employee Benefit

Plan sponsored by a Client of the Firm or any of its Affiliates, except through the
permitted employment of a member of his or her Immediate Family.

30
3 Policies Applicable to Assurance Engagements

3.1.1 Who must be Independent

a) For Audit and Review Engagements, all members of the Audit Team and the Firm
are required to be independent of the Client. (In this section, the terms “Audit”,
“Audit Team”, “Audit Engagement”, “Audit Client” and “audit report” includes
Review, review team, Review Engagement, review client and review report

b) For other Assurance Engagements for non-audit Clients where the report is not
restricted to identified users, all members of the Assurance Team and the Firm
performing the Assurance Engagement must be independent of the Client.

c) For other Assurance Engagements for non-audit Clients where the report is
restricted to identified users, all members of the Assurance Team must be
independent of the Client and the Firm performing the Assurance Engagement
must not have a Material Direct or Indirect Financial Interest in the Client.

The following chart illustrates these independence requirements:

Type of Assurance Engagement & Independence

Requirements
Audit
Non-audit assurance Non-audit assurance
and
- not restricted use - restricted use
Review
Audit
All members of the Assurance Team and the Firm
Client
C
L All members of the
I All members of the Assurance Team
E Non- Assurance Team and (The Firm performing the
N audit the Firm performing Assurance Engagement
T assurance the Assurance cannot have a material
Client Engagement. financial interest in the
Client).

3.1.2 Period for which Independence is required

31
 Independence is required during the period of the Assurance Engagement, which
starts when the Assurance Team begins to perform assurance services and ends,
except for recurring engagements, when the assurance report is issued.

For recurring engagements, the period ends upon the notification by either party that
the professional relationship has been terminated, or upon the issuance of the final
assurance report if later.

In the case of audit engagements, the engagement period includes the period covered
by the financial statements reported on by the Firm. However, financial or business
relationships and non-assurance services provided during or after the period covered
by the financial statements to be reported on will not usually be deemed to impair the
Firm’s independence provided appropriate safeguards are applied to reduce the threat
to independence to an acceptable level. Such safeguards would usually include:

a) Eliminating all financial or business relationships prior to commencing the

performance of audit services;
b) Discussing independence issues related to the provision of non-assurance services
with those charged with governance;
c) Obtaining the Client’s acknowledgement of its responsibility for the results of the
non-assurance services; and
d) Precluding personnel who provided the non-assurance services from participating
in the audit engagement, or engaging another firm to review or re-perform the
non-assurance services and take responsibility for those services.

A non-assurance service provided to a non-listed financial statement audit client will

not impair the firm’s independence when the client becomes a listed entity provided:

a) The previous non-assurance service was permissible (see Section 3.8) for non-
listed financial statement audit clients;
b) The service will be terminated within a reasonable period of time of the client
becoming a listed entity, if they are not permissible (see Section 3.8); and
c) The Firm has implemented appropriate safeguards to eliminate any threats to
independence arising from the previous service or to reduce them to an acceptable
level.

3.1.3 Documentation

Documentation provides evidence of the professional accountant’s judgments in

forming conclusions regarding compliance with independence requirements. The
absence of documentation is not a determinant of whether a firm considered a
particular matter or whether it is independent.

The professional accountant shall document conclusions regarding compliance with

independence requirements, and the substance of any relevant discussions that support
those conclusions. Accordingly:
(a) When safeguards are required to reduce a threat to an acceptable level, the
professional accountant shall document the nature of the threat and the safeguards
in place or applied that reduce the threat to an acceptable level; and
(b) When a threat required significant analysis to determine whether safeguards were
necessary and the professional accountant concluded that they were not because

32
 the threat was already at an acceptable level, the professional accountant shall
document the nature of the threat and the rationale for the conclusion.

3.1.4 Mergers and Acquisitions

When, as a result of a merger or acquisition, an entity becomes a related entity of an

audit client, the firm shall identify and evaluate previous and current interests and
relationships with the related entity that, taking into account available safeguards,
could affect its independence and therefore its ability to continue the audit
engagement after the effective date of the merger or acquisition.

The Firm shall take steps necessary to terminate, by the effective date of the merger or
acquisition, any current interests or relationships that are not permitted under this
Policy. However, if such a current interest or relationship cannot reasonably be
terminated by the effective date of the merger or acquisition, for example, because the
related entity is unable by the effective date to effect an orderly transition to another
service provider of a non-assurance service provided by the firm, the firm shall
evaluate the threat that is created by such interest or relationship. The more significant
the threat, the more likely the firm’s objectivity will be compromised and it will be
unable to continue as auditor. The significance of the threat will depend upon factors
such as:

• The nature and significance of the interest or relationship;

• The nature and significance of the related entity relationship (for example,
whether the related entity is a subsidiary or parent); and
• The length of time until the interest or relationship can reasonably be terminated.

The Firm shall discuss with those charged with governance the reasons why the
interest or relationship cannot reasonably be terminated by the effective date of the
merger or acquisition and the evaluation of the significance of the threat.

If those charged with governance request the firm to continue as auditor, the Firm
shall do so only if:

(a) The interest or relationship will be terminated as soon as reasonably possible and
in all cases within six months of the effective date of the merger or acquisition;
(b) Any individual who has such an interest or relationship, including one that has
arisen through performing a non-assurance service that would not be permitted
under this section, will not be a member of the engagement team for the audit or
the individual responsible for the engagement quality control review; and
(c) Appropriate transitional measures will be applied, as necessary, and discussed
with those charged with governance.

Examples of transitional measures include:

• Having a professional accountant review the audit or non-assurance work as

appropriate;

33
• Having a professional accountant, who is not a member of the firm expressing the
opinion on the financial statements perform a review that is equivalent to an
engagement quality control review; or
• Engaging another firm to evaluate the results of the non-assurance service or
having another firm re-perform the non-assurance service to the extent necessary
to enable it to take responsibility for the service.

The Firm may have completed a significant amount of work on the audit prior to the
effective date of the merger or acquisition and may be able to complete the remaining
audit procedures within a short period of time. In such circumstances, if those charged
with governance request the firm to complete the audit while continuing with an
interest or relationship identified above, the firm shall do so only if it:

(a) Has evaluated the significance of the threat created by such interest or relationship
and discussed the evaluation with those charged with governance;
(b) Complies with the requirements of paragraphs (b)–(c) above; and
(c) Ceases to be the auditor no later than the issuance of the audit report.

When addressing previous and current interests and relationships covered above the
firm shall determine whether, even if all the requirements could be met, the interests
and relationships create threats that would remain so significant that objectivity would
be compromised and, if so, the firm shall cease to be the auditor.

The professional accountant shall document any interests or relationships covered by

paragraphs above that will not be terminated by the effective date of the merger or
acquisition and the reasons why they will not be terminated, the transitional measures
applied, the results of the discussion with those charged with governance, and the
rationale as to why the previous and current interests and relationships do not create
threats that would remain so significant that objectivity would be compromised.

34
3.2 Financial Interests

3.2.1 Applicability
These policies apply to direct and indirect financial interests in Audit and Assurance
Clients.

When evaluating the type of financial interest, consideration shall be given to the fact
that financial interests range from those where the individual has no control over the
investment vehicle or the financial interest held (e.g., a mutual fund, unit trust or
similar intermediary vehicle) to those where the individual has control over the
financial interest (e.g., as a trustee) or is able to influence investment decisions. In
evaluating the significance of any threat to independence, it is important to consider
the degree of control or influence that can be exercised over the intermediary, the
financial interest held, or its investment strategy. When control or the ability to
influence investment decisions exists, the financial interest shall be considered direct.
Conversely, when the holder of the financial interest has no ability to exercise such
control or influence investment decisions the financial interest shall be considered
indirect.

Where reference is made to the materiality of a financial interest, loan or guarantee or

the significance of a business relationship for the purpose of determining whether
such an interest is material to an individual, the combined net worth of the individual
and the individual’s immediate family members may be taken into account.

3.2.2 Financial Interests of the Firm

The Firm shall not have:

• A Direct or Material Indirect Financial Interest in an Audit Client, or any entity
that has a controlling interest in an Audit Client, of the Firm
• A Direct or Material Indirect Financial Interest in any non-audit Assurance Client
of the Firm, or a Material Financial Interest in any entity that has a controlling
interest in any non-audit Assurance Client of the Firm.
• If the assurance report is restricted to identified users, the Firm may have an
Immaterial Direct Financial Interest in the non-audit Assurance Client.
• A Material Financial Interest in an entity over which an Assurance Client, or an
officer, director or controlling owner of an Assurance Client, can exercise
Significant Influence.

3.2.3 Financial Interests of the Assurance Team and their Immediate Family Members
A member of the Assurance Team and all members of his or her Immediate Family
shall not have a Direct or Material Indirect Financial Interest in the Assurance Client
or any entity that has a controlling interest in the Assurance Client.

If a member of the Assurance Team or a member of his or her Immediate Family

inadvertently acquires a Direct or Material Indirect Financial Interest in the Assurance
Client (such as by gift, inheritance or by merger), the member shall either dispose of
the financial interest at the earliest practical date or be removed from the Assurance
Team.

A member of the Assurance Team, who knows that a Close Family Member has a
Direct or Material Indirect Financial Interest in the Assurance Client, shall consult

35
 with the Partner Responsible for Independence and implement appropriate safeguards
to reduce the independence threat to an acceptable level.

A member of the Assurance Team and all members of his or her Immediate Family
shall not have a Material Financial Interest in an entity over which an Assurance
Client, or an officer, director or controlling owner of an Assurance Client can exercise
Significant Influence.

3.2.4 Financial Interests of Office Partners and their Immediate Family Members
A Partner in the Office in which the Engagement Partner practices in connection with
the financial statement audit shall not have a Direct or Material Indirect Financial
Interest in the Audit Client.

A member of the Immediate Family of a Partner in the Office in which the

Engagement Partner practices in connection with the financial statement audit shall
not have a Direct or Material Indirect Financial Interest in the Audit Client unless the
Financial Interest is acquired as a result of his or her permitted employment and
associated employment rights (e.g., through an Employee Benefit Plan).

3.2.5 Financial Interests of Other Client Service Personnel and their Immediate
Family Members
Other Partners and Managers who provide non-assurance services to the Audit Client
shall not have a Direct or Material Indirect Financial Interest in the Audit Client.

A member of the Immediate Family of a Partner or Manager who provides non-

assurance services to the Audit Client shall not have a Direct or Material Indirect
Financial Interest in the Audit Client unless the Financial Interest is acquired as a
result of his or her permitted employment and associated employment rights (e.g.,
through an Employee Benefit Plan).

3.2.6 Financial Interests of the Firm or a Member of the Assurance Team as Trustee
The Firm or a member of the Assurance Team shall not hold a Financial Interest in an
Assurance Client as a trustee if:
a) The Firm, a member of the Assurance Team or an Immediate Family Member of a
member of the Assurance Team is a beneficiary of the trust;
b) The financial interest in the Assurance Client is Material to the trust;
c) The trust is able to exercise Significant Influence over the Assurance Client; or
d) The Firm or a member of the Assurance Team is able to exercise Significant
Influence over any investment decision involving the Financial Interest in the
Assurance Client.

36
3.3 Loans and Guarantees

3.3.1 Applicability
These policies apply to deposits with and loans to or from or a guarantee of a loan to
or from an Assurance Clients. In this section references to loans include guarantees in
respect of such loans.

3.3.2 Loans from an Assurance Client to the Firm

The Firm shall not have a loan from an Assurance Client of the Firm, or from any
entity that has a controlling interest in an Assurance Client of the Firm, unless:

a) The entity is a Financial Institution and the loan has been made under normal
lending procedures, terms and requirements, and
b) The loan is immaterial to both the Firm and the Assurance Client.

3.3.3 Loans from an Assurance Client to a Member of the Assurance Team or a

member of his or her Immediate Family
A member of the Assurance Team or a member of his or her Immediate Family shall
not have a loan from an Assurance Client of the Firm, or any entity that has a
controlling interest in an Assurance Client of the Firm, unless:
a) The entity is a Financial Institution, and
b) The loan has been made under normal lending procedures, terms and
requirements.

In addition, any unsecured loans must be immaterial to both the member of the
Assurance Team and his or her Immediate Family, and the Assurance Client.

3.3.4 Deposits of the Firm or a Member of the Assurance Team with an Assurance
Client
The Firm, or a member of the Assurance Team or a member of his or her Immediate
Family shall not make a deposit with an Assurance Client of the Firm, or any entity
that has a controlling interest in an Assurance Client of the Firm unless the entity is a
Financial Institution and the deposit has been made under normal deposit terms.

3.3.5 Loans from the Firm or a Member of the Assurance Team to an Assurance
Client
The Firm or a member of the Assurance Team, or his/ her Immediate Family shall not
make a loan to an Assurance Client of the Firm, or to any entity that has a controlling
interest in an Assurance Client of the Firm.

37
3.4 Business Relationships

3.4.1 Applicability
These policies apply to business relationships with Assurance Clients, and their
controlling owners, directors and officers and senior management, and to the
ownership of the capital of the Firm that performs assurance services.

3.4.2 Business Relationships of the Firm

The Firm shall not have any of the following business relationships with an Assurance
Client, or with any of its controlling owners, directors, officers or senior management,
unless any financial interest is immaterial and the business relationship is insignificant
to the Firm and the Assurance Client:
a) Joint ventures;
b) Arrangements to combine one or more services or products of the Firm with one
or more services or products of the Assurance Client and to market the package
with reference to both parties; and
c) 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 of the Firm.

3.4.3 Business Relationships of a Member of the Assurance Team or a member of his

or her Immediate Family
A member of the Assurance Team, or a member of his or her Immediate Family, shall
not have any of the following business relationships with an Assurance Client, or with
any of its controlling owners, directors, officers or senior management, unless the
financial interest is immaterial and the relationship is insignificant to both the member
of the Assurance Team or his or her Immediate Family member and the Assurance
Client:

a) Joint ventures;
b) Arrangements to combine one or more services or products of the Firm with one
or more services or products of the Assurance Client and to market the package
with reference to both parties; and
c) 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 of the Firm.

38
3.4.4 Ownership Interest together with an Assurance Client, or its Directors, Officers
or Senior Management in a Closely Held Entity or Property
The Firm or a member of the Assurance Team or a member of his or her Immediate
Family shall not have an ownership interest in a closely held entity or property in
which an Assurance Client or any of its controlling owners, directors, officers or
senior management also holds an interest, unless:

a) The ownership interest is immaterial to the Firm or the member of the Assurance
Team and his or her Immediate Family; and
b) The Firm and the members of the Assurance Team and their Immediate Family do
not have the ability to exercise significant influence over the closely held entity or
property.

3.4.5 Preventive Measures

Prior to entering into a business relationship with any entity or individual (other than
as a normal customer in the ordinary course of business), the Firm, and each Partner
or Professional Employee shall:

a) Review the AOC Prohibited Securities List, and

b) Take any other precautions as are appropriate in the circumstances, to determine
that the entity or individual is not:
(i) An Assurance Client of the Firm,
(ii) An Assurance Client listed on the AOC Prohibited Securities List or
(iii) A controlling owner, director, officer or member of senior management
of any such Assurance Client.

3.4.6 Ownership of the Capital of the Firm That Performs Assurance Services
The capital of the Firm that performs assurance services shall be owned/held entirely
by auditors or shareholders in public practice. However, ownership of capital or the
holding of voting rights by other individuals active in the business is permitted,
provided the majority of both the ownership of the capital and the voting rights lies
only with the auditors or shareholders in public practice.

39
3.5 Family and Personal Relationships

3.5.1 Applicability
These policies apply to all family and personal relationships involving Assurance
Clients of the Firm.

3.5.2 When An Immediate Family Member or a Close Family Member is a director or

an officer of an Assurance Client or an employee of an Assurance Client in a
Position to Exert Direct and Significant Influence over the Subject Matter of an
Assurance Engagement
A Partner or Professional Employee shall immediately inform the Managing Partner
and Partner Responsible for Independence and remove himself or herself from all
Assurance Engagements for a Client in which an Immediate Family or a Close Family
Member is, or during the period covered by the Assurance Engagement, was:

a) A director or an officer of the Assurance Client; or

b) An employee of the Assurance Client in a Position to Exert Direct and Significant
Influence over the Subject Matter of the Assurance Engagement.

A Partner or Professional Employee shall report on his or her annual Independence

Compliance Questionnaire all such situations. In addition to the removal from the
Assurance Engagement, other actions may be taken to ensure the independence of the
Firm (as determined by the Partner Responsible for Independence) based upon:

a) The role of the Family Member within the Assurance Client, and
b) The position of the Partner or Professional Employee, and
c) His or her relationship to the members of the Assurance Team.

3.5.3 Close relationships with an individual, other than an Immediate Family Member
or a Close Family Member, in a Position to Exert Direct and Significant
Influence over the Subject Matter of an Assurance Engagement
A Partner or Professional Employee shall immediately inform the Managing Partner
and the Partner Responsible for Independence of all situations in which an individual,
other than an Immediate Family Member or a Close Family Member, with whom the
Partner or Professional Employee has a Close Relationship is, or during the period
covered by the Assurance Engagement was:

a) A director or officer of an Assurance Client; or

b) An employee of an Assurance Client in a Position to Exert Direct and Significant
Influence over the Subject matter of the Assurance Engagement.

Action to be taken to ensure the independence of the Firm will be determined by the
Partner Responsible for Independence based upon the nature of the relationship, the
role of the individual within the Assurance Client, the position of the Partner or
Professional Employee and his or her relationship to the members of the Assurance
Team.

3.6 Employment by or Service as an Officer or Director of an Assurance Client

40
3.6.1 Applicability
These policies apply to Partners and Professional Employees who are considering or
have accepted employment with an Assurance Client or who are currently serving or
have recently served as an officer, director or employee of an Assurance Client.

3.6.2 Partners and Professional Employees who are Considering Employment with an
Assurance Client
Any member of the Assurance Team who is either approached about employment by,
or seeks employment with, an Assurance Client of the Firm, shall immediately:
a) Notify the Managing Partner, the Partner Responsible for Independence, and the
Lead engagement Partner for the Assurance Client, and
b) Remove himself or herself from the Assurance Engagement until the employment
offer is rejected or employment is no longer being sought.

3.6.3 Former Partner or Professional Employee of the Firm who becomes an Officer,
Director or Employee of an Assurance Client
When a former Partner or Professional Employee becomes an officer, director or
employee of an Assurance Client or an entity that subsequently becomes an Assurance
Client, such individual must no longer participate or appear to participate in the Firm's
business or professional activities. Any benefits or payments from the Firm to such
individual must be made in accordance with fixed pre-determined arrangements.

In addition, the Partner Responsible for Independence shall be consulted to determine

the appropriate safeguards that shall be applied to reduce the threats to independence
to an acceptable level. Such safeguards will depend on:
a) The position the individual has taken at the Assurance Client,
b) The involvement the individual will have with the Assurance Team,
c) The former position of the individual with the Firm or the Assurance Team, and
d) The amount of time that has passed since the individual left the Firm.

Possible safeguards might include:

a) Performing a review of the individual's work on prior Assurance Engagements;
b) Modifying the assurance plan for the engagement;
c) Assessing the experience of the assigned Assurance Team in relation to the
experience and stature of the individual joining the Assurance Client; or
d) Arranging for a second Partner review of the current Assurance Engagement.

3.6.4 Recent Employment with an Assurance Client

A Partner or Professional Employee who was formerly an
a) Officer of an Assurance Client or
b) Director of an Assurance Client or

41
 c) An employee of an Assurance Client who was in a Position to Exert Direct and
Significant Influence over the Subject Matter of the Assurance Engagement

shall not serve as a member of the Assurance Team for an Assurance Engagement
covering any period during which the Partner or Professional Employee served in
such capacity for the Assurance Client.

3.6.5 Current Employment with an Assurance Client

A Partner or Professional Employee shall not also be an employee of an Assurance
Client of the Firm, or any entity that has a controlling interest in an Assurance Client
of the Firm.

3.6.6 Service as an Officer or Director of an Assurance Client

A Partner or Professional Employee shall not serve as an officer or director of an:
a) Audit Client or any of its Affiliates; or
b) Assurance Client or any of its Affiliates.

However, a Partner or Professional Employee may serve as company secretary to an

Assurance Client provided that:

Such practice is specifically permitted under local law and professional rules;
a) Duties undertaken are limited to those of a routine and formal administrative
nature, such as the preparation of minutes and the maintenance of statutory
returns; and
b) The Assurance Client is not a Listed Audit Client.

3.6.7 Temporary Staff Assignments with Audit Clients

The Firm may provide temporary staff to an Audit Client only if the staff will not be
involved in:
a) Making management decisions;
b) Providing non-assurance services that would not be permitted by this policy;
c) Approving or signing agreements or other similar documents; or
d) Exercising discretionary authority to commit the Audit Client.

If the temporary staff assignments result in the Firm’s staff being in a position to
influence the preparation of the Audit Client’s accounts or financial statements, the
staff providing the assistance shall not be assigned to the Audit Engagement.

42
3.7 Provision of Non-Assurance Services to an Assurance Client

3.7.1 Applicability
These policies apply to certain non-assurance services provided to Assurance Clients
by the Firm.

The audit process involves extensive dialogue between the Firm and management of
the financial statement audit client. During the process, management requests and
receives significant input regarding such matters as accounting principles and
financial statement disclosure, the appropriateness of controls and the methods used in
determining the stated amounts of assets and liabilities. Technical assistance of this
nature and advice on accounting principles for financial audit clients are an
appropriate means to promote the fair presentation of the financial statements. The
provision of such advice does not generally threaten the Firm’s independence.
Similarly, the financial statement audit process may involve assisting an audit client in
resolving account reconciliation problems, analyzing and accumulating information
for regulatory reporting, assisting in the preparation of consolidated financial
statements (including the translation of local statutory accounts to comply with group
accounting policies and the transition to a different reporting framework such as
International Financial Reporting Standards), drafting disclosure items, proposing
adjusting journals entries and providing assistance and advice in the preparation of
local statutory accounts of subsidiary entities. These services are considered to be a
normal part of the audit process and do not, under normal circumstances, threaten
independence.

3.7.2 Performance of Management Functions

The Firm shall not perform any of the following management functions or activities
for an Assurance Client:

a) Authorise, execute or consummate transactions;

b) Prepare source documents or originate data, in electronic or other form,
evidencing the occurrence of transactions;
c) Have access to or custody of the Client’s assets;
d) Have authorisation to exercise authority on behalf of the Client;
e) Supervise Client employees in the performance of their normal recurring
activities;
f) Report, in a management role, to those charged with corporate governance of the
Client; or
g) Determine which recommendations of the Firm should be implemented.

3.7.3 Preparation of Accounting Records

The Firm may provide an Assurance Client with accounting and bookkeeping services
of a routine nature, provided the Firm personnel do not make management decisions
on behalf of the Assurance Client. The following activities are specifically
prohibited:

a) Determining or changing journal entries, or the classifications for accounts or

transactions or other accounting records without obtaining the approval of the
Assurance Client;
b) Making changes to source documents or originating data.

43
 The Firm may provide an audit client, that is not a listed entity, with the following
services, provided any self-review threat is reduced to an acceptable level:
a) Recording transactions for which the audit client has determined or approved the
appropriate account classification;
b) Posting coded transactions to the audit client’s general ledger;
c) Preparing financial statements based on information in the trial balance; and
d) Posting the audit client approved entries to the trial balance.

3.7.4 Valuation Services

The Firm shall not perform Valuation Services for an Audit Client if the Valuation
Services involve a significant degree of subjectivity and matters that are material to
the financial statements.

Valuation Services may be performed for an Assurance Client:

a) For the purposes of making a filing or return to a tax authority;
b) For the purposes of tax planning;
c) Which do not involve a significant degree of subjectivity; or
d) Which do not involve Subject Matter or assets that are material to the Assurance
Engagement.

If the Firm performs Valuation Services for an Audit Client that do not involve a
significant degree of subjectivity and the matters or assets subject to the valuation are
not material to the Subject Matter of the Assurance Engagement, safeguards shall be
considered and applied as necessary to eliminate the self-review threat or reduce it to
an acceptable level. If Valuation Services are provided to a Non-Audit Assurance
Client, safeguards shall be considered and applied as necessary to eliminate the self-
review threat or reduce it to an acceptable level. In all cases where the Firm performs
Valuation Services for an Assurance Client, management must acknowledge in
writing their understanding and approval of the significant assumptions and
methodologies underlying the valuation and their responsibility for the results of the
Valuation Services.

3.7.5 Internal Audit Services

The Firm shall not perform Internal Audit Services for an Audit Client unless:

a) Management of the Audit Client acknowledges its responsibility for establishing,

maintaining and monitoring the system of internal controls;
b) Management designates a competent employee, preferably within senior
management, to be responsible for internal audit activities;
c) Management, the Audit Committee or the Board of Directors approves the scope,
risk and frequency of internal audit work;
d) Management is responsible for evaluating and determining which
recommendations of the Firm shall be implemented;
e) Management evaluates the adequacy of the internal audit procedures performed
and the findings resulting from the performance of those procedures by, among
other things, obtaining and acting on reports from the Firm; and
f) Management appropriately reports the findings and recommendations resulting
from internal audit activities to the Board of Directors or the Audit Committee.

44
3.7.6 Information Technology Systems (ITS) Services
The Firm shall not perform services involving the design and implementation of ITS
that are used to generate information forming part of an Audit Client’s financial
statements unless:

a) Management of the Audit Client acknowledges its responsibility for establishing,

maintaining and monitoring a system of internal controls;
b) Management designates a competent employee, preferably within senior
management, to be responsible for making all management decisions with respect
to the design and implementation of the ITS or management makes all such
decisions;
c) Management evaluates the adequacy and results of the design and implementation
of the ITS; and
d) Management accepts responsibility for the operation of the ITS and the data used
or generated by the ITS.

The following IT systems services are deemed not to create a threat to independence
as long as the Firm’s personnel do not assume a management responsibility:

a) Design or implementation of IT systems that are unrelated to internal control over

financial reporting;
b) Design or implementation of IT systems that do not generate information forming
a significant part of the accounting records or financial statements;
c) Implementation of “off-the-shelf” accounting or financial information reporting
software that was not developed by the firm if the customization required to meet
the client’s needs is not significant; and
d) Evaluating and making recommendations with respect to a system designed,
implemented or operated by another service provider or the client.

3.7.7 Litigation Support Services

The Firm shall not undertake Litigation Support Services for an Audit Client if the
role undertaken by the Firm involves making managerial decisions on behalf of the
Client.

The Firm shall not represent an Audit Client in the resolution of a dispute or litigation
when the amounts involved are material in relation to the financial statements of the
Audit Client. In the case of other litigation support services, the significance of any
threat created shall be evaluated and safeguards applied when necessary to eliminate
the threat or reduce it to an acceptable level.

3.7.8 Legal Services

No Partner or Professional Employee shall accept appointment as General Counsel for
an Audit Client.

45
 The Firm may provide legal services to support an Audit Client in the execution of a
transaction (e.g., contract support, legal advice, legal due diligence and restructuring)
provided:

a) The person providing the services is either admitted to practice before the Courts
of the jurisdiction in which such services are to be provided, or is otherwise
permitted to do so under local law, professional rules and practices;
b) No members of the Assurance Team are involved in providing the services; and
c) The Audit Client makes the ultimate decisions and the services are limited to
executing matters that have been decided by the Audit Client.

3.7.9 Recruiting Services

Providing recruiting services to an audit client may create self-interest, familiarity or
intimidation threats. The existence and significance of any threat will depend on
factors such as:
• The nature of the requested assistance; and
• The role of the person to be recruited.

The significance of any threat created shall be evaluated and safeguards applied when
necessary to eliminate the threat or reduce it to an acceptable level. In all cases, the
firm shall not assume management responsibilities, including acting as a negotiator on
the client’s behalf, and the hiring decision shall be left to the client.

3.7.10 Corporate Finance

The Firm shall not promote, deal in or underwrite an Assurance Client’s shares or
other securities, or commit an Assurance Client to the terms of a transaction or
consummate a transaction on behalf of an Assurance Client.

Providing corporate finance services such as:

• assisting an audit client in developing corporate strategies;
• identifying possible targets for the audit client to acquire;
• advising on disposal transactions;
• assisting finance raising transactions; and
• providing structuring advice,

may create advocacy and self-review threats. The significance of any threat shall be
evaluated and safeguards applied when necessary to eliminate the threat or reduce it to
an acceptable level. Examples of such safeguards include:

• Using professionals who are not members of the audit team to provide the
services; or
• Having a professional who was not involved in providing the corporate finance
service advise the audit team on the service and review the accounting treatment
and any financial statement treatment.

Providing a corporate finance service, for example advice on the structuring of a

corporate finance transaction or on financing arrangements that will directly affect

46
 amounts that will be reported in the financial statements on which the firm will
provide an opinion may create a self-review threat. The existence and significance of
any threat will depend on factors such as:

• The degree of subjectivity involved in determining the appropriate treatment for

the outcome or consequences of the corporate finance advice in the financial
statements;
• The extent to which the outcome of the corporate finance advice will directly
affect amounts recorded in the financial statements and the extent to which the
amounts are material to the financial statements; and
• Whether the effectiveness of the corporate finance advice depends on a particular
accounting treatment or presentation in the financial statements and there is doubt
as to the appropriateness of the related accounting treatment or presentation under
the relevant financial reporting framework.

The significance of any threat shall be evaluated and safeguards applied when
necessary to eliminate the threat or reduce it to an acceptable level.
Examples of such safeguards include:
• Using professionals who are not members of the audit team to perform the service;
or
• Having a professional who was not involved in providing the corporate finance
service to the client advice the audit team on the service and review the accounting
treatment and any financial statement treatment.

Where the effectiveness of corporate finance advice depends on a particular

accounting treatment or presentation in the financial statements and:

a) The audit team has reasonable doubt as to the appropriateness of the related
accounting treatment or presentation under the relevant financial reporting
framework; and
b) The outcome or consequences of the corporate finance advice will have a material
effect on the financial statements on which the firm will express an opinion;

The self-review threat would be so significant that no safeguards could reduce the
threat to an acceptable level, in which case the corporate finance advice shall not be
provided.

3.7.11 Taxation Services

The Firm may provide taxation services to an audit client.

Taxation services comprise a broad range of services, including:

• Tax return preparation;
• Tax calculations for the purpose of preparing the accounting entries;
• Tax planning and other tax advisory services; and
• Assistance in the resolution of tax disputes.

While taxation services provided by a firm to an audit client are addressed separately
under each of these broad headings; in practice, these activities are often interrelated.

Performing certain tax services creates self-review and advocacy threats. The
existence and significance of any threats will depend on factors such as:

47
• The system by which the tax authorities assess and administer the tax in question
and the role of the firm in that process;
• The complexity of the relevant tax regime and the degree of judgment necessary
in applying it;
• The particular characteristics of the engagement; and
• The level of tax expertise of the client’s employees.

Tax Return Preparation

Tax return preparation services involve assisting clients with their tax reporting
obligations by drafting and completing information, including the amount of tax due
(usually on standardized forms) required to be submitted to the applicable tax
authorities. Such services also include 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 (including providing explanations of
and technical support for the approach being taken). Tax return preparation services
are generally based on historical information and principally involve analysis and
presentation of such historical information under existing tax law, including
precedents and established practice. Further, the tax returns are subject to whatever
review or approval process the tax authority deems appropriate. Accordingly,
providing such services does not generally create a threat to independence if
management takes responsibility for the returns including any significant judgments
made.

Tax Calculations for the Purpose of Preparing Accounting Entries

Audit clients that are not public interest entities

Preparing calculations of current and deferred tax liabilities (or assets) for an audit
client for the purpose of preparing accounting entries that will be subsequently audited
by the Firm creates a self-review threat. The significance of the threat will depend on:

a) The complexity of the relevant tax law and regulation and the degree of judgment
necessary in applying them;
b) The level of tax expertise of the client’s personnel; and
c) The materiality of the amounts to the financial statements.

Safeguards shall be applied when necessary to eliminate the threat or reduce it to an

acceptable level. Examples of such safeguards include:
• Using professionals who are not members of the audit team to perform the service;
• If the service is performed by a member of the audit team, using a partner or
senior staff member with appropriate expertise who is not a member of the audit
team to review the tax calculations; or
• Obtaining advice on the service from an external tax professional.

Tax Planning and Other Tax Advisory Services

Tax planning or other tax advisory services comprise a broad range of services, such
as advising the client how to structure its affairs in a tax efficient manner or advising
on the application of a new tax law or regulation.

48
A self-review threat may be created where the advice will affect matters to be
reflected in the financial statements. The existence and significance of any threat will
depend on factors such as:

• The degree of subjectivity involved in determining the appropriate treatment for

the tax advice in the financial statements;
• The extent to which the outcome of the tax advice will have a material effect on
the financial statements;
• Whether the effectiveness of the tax advice depends on the accounting treatment
or presentation in the financial statements and there is doubt as to the
appropriateness of the accounting treatment or presentation under the relevant
financial reporting framework;
• The level of tax expertise of the client’s employees;
• The extent to which the advice is supported by tax law or regulation other
precedent or established practice; and
• Whether the tax treatment is supported by a private ruling or has otherwise been
cleared by the tax authority before the preparation of the financial statements.

For example, providing tax planning and other tax advisory services where the advice
is clearly supported by tax authority or other precedent, by established practice or has
a basis in tax law that is likely to prevail does not generally create a threat to
independence.

The significance of any threat shall be evaluated and safeguards applied when
necessary to eliminate the threat or reduce it to an acceptable level.

Examples of such safeguards include:

• Using professionals who are not members of the audit team to perform the service;
• Having a tax professional, who was not involved in providing the tax service,
advise the audit team on the service and review the financial statement treatment;
• Obtaining advice on the service from an external tax professional; or
• Obtaining pre-clearance or advice from the tax authorities.

Where the effectiveness of the tax advice depends on a particular accounting treatment
or presentation in the financial statements and:

a) The audit team has reasonable doubt as to the appropriateness of the related
accounting treatment or presentation under the relevant financial reporting
framework; and
b) The outcome or consequences of the tax advice will have a material effect on the
financial statements on which the firm will express an opinion;

The self-review threat would be so significant that no safeguards could reduce the
threat to an acceptable level. Accordingly, a firm shall not provide such tax advice to
an audit client.

In providing tax services to an audit client, a firm may be requested to perform a

valuation to assist the client with its tax reporting obligations or for tax planning

49
purposes. Where the result of the valuation will have a direct effect on the financial
statements, the provisions included in 3.7.4 relating to valuation services are
applicable.

Where the valuation is performed for tax purposes only and the result of the valuation
will not have a direct effect on the financial statements (that is, the financial
statements are only affected through accounting entries related to tax), this would not
generally create threats to independence if such effect on the financial statements is
immaterial or if the valuation is subject to external review by a tax authority or similar
regulatory authority. If the valuation is not subject to such an external review and the
effect is material to the financial statements, the existence and significance of any
threat created will depend upon factors such as:

• The extent to which the valuation methodology is supported by tax law or

regulation, other precedent or established practice and the degree of subjectivity
inherent in the valuation.
• The reliability and extent of the underlying data.

The significance of any threat created shall be evaluated and safeguards applied when
necessary to eliminate the threat or reduce it to an acceptable level. Examples of such
safeguards include:
• Using professionals who are not members of the audit team to perform the service;
• Having a professional review the audit work or the result of the tax service; or
• Obtaining pre-clearance or advice from the tax authorities.

Assistance in the Resolution of Tax Disputes

An advocacy or self-review threat may be created when the Firm represents an audit
client in the resolution of a tax dispute once the tax authorities have notified the client
that they have rejected the client’s arguments on a particular issue and either the tax
authority or the client is referring the matter for determination in a formal proceeding,
for example before a tribunal or court. The existence and significance of any threat
will depend on factors such as:

• Whether the Firm has provided the advice which is the subject of the tax dispute;
• The extent to which the outcome of the dispute will have a material effect on the
financial statements on which the Firm will express an opinion;
• The extent to which the matter is supported by tax law or regulation, other
precedent, or established practice;
• Whether the proceedings are conducted in public; and
• The role management plays in the resolution of the dispute.

The significance of any threat created shall be evaluated and safeguards applied when
necessary to eliminate the threat or reduce it to an acceptable level. Examples of such
safeguards include:

• Using professionals who are not members of the audit team to perform the service;
• Having a tax professional, who was not involved in providing the tax service,
advise the audit team on the services and review the financial statement treatment;
or

50
• Obtaining advice on the service from an external tax professional.

Where the taxation services involve acting as an advocate for an audit client before a
public tribunal or court in the resolution of a tax matter and the amounts involved are
material to the financial statements on which the Firm will express an opinion, the
advocacy threat created would be so significant that no safeguards could eliminate or
reduce the threat to an acceptable level. Therefore, the Firm shall not perform this
type of service for an audit client. What constitutes a “public tribunal or court” shall
be determined according to how tax proceedings are heard in the particular
jurisdiction.

The Firm is not, however, precluded from having a continuing advisory role (for
example, responding to specific requests for information, providing factual accounts
or testimony about the work performed or assisting the client in analyzing the tax
issues) for the audit client in relation to the matter that is being heard before a public
tribunal or court.

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3.8 Fees and Litigation Situations Involving Assurance Clients

3.8.1 Applicability
These policies apply to all fee and litigation situations with Assurance Clients.

3.8.2 Past Due Fees

The Firm shall not commence an Assurance Engagement for any Client that is not
expected to pay all fees for services rendered more than one year prior to the expected
date of the Firm's report on a current Assurance Engagement.

In other cases, the Firm shall not issue a report for the current year Assurance
Engagement, if fees for the previous year’s Engagement remain outstanding at the
time the current year report is about to be issued.

3.8.3 Contingent Fees and Commissions

The Firm will not enter into an agreement to:
a) Provide assurance services where the amount of the fee is contingent on the result
of the assurance work or on the items that are the Subject Matter of the Assurance
Engagement; or
b) Provide non-assurance services to an Assurance Client where the fee is agreed to,
or contemplated, during an Assurance Engagement and is contingent on the result
of the Assurance Engagement.

The Firm shall not accept a commission or any other form of compensation for
recommending to an Assurance Client a product or service to be provided by a third
party, or accept a commission or any other form of compensation for recommending
any product or service to be provided by an Assurance Client.

3.8.4 Materiality of Fees to an Individual Partner

The lead assurance engagement Partner shall consult with the Partner Responsible for
Independence whenever the total fees from an Assurance Client and its Affiliates, in
any year, is more than 20% of the total fee income from all Clients assigned to the
Partner in the same year. The purpose of the consultation is to determine that
appropriate safeguards have been implemented to reduce the independence threat to
an acceptable level.

3.8.5 Actual or Threatened Litigation

The Firm shall stop performing any Assurance Services for a Client as soon as:
a) Litigation has been commenced by the Client against the Firm or by the Firm
against the Client, or
b) Where there is a credible threat or a declared intention to commence legal action.

This includes:
a) The issuance by the Assurance Client of a writ for negligence against the Firm;
b) The inclusion, in any litigation, of allegations against the Client of fraud or deceit
made by the Firm; or
c) The Firm sues the Client in a court of law, including any legal claims for unpaid
fees.

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3.8.6 Compensation and Evaluation Policies
A self-interest threat is created when a member of the audit team is evaluated on or
compensated for selling non-assurance services to that audit client. The significance
of the threat will depend on:

• The proportion of the individual’s compensation or performance evaluation that is

based on the sale of such services;
• The role of the individual on the audit team; and
• Whether promotion decisions are influenced by the sale of such services.

The significance of the threat shall be evaluated and, if the threat is not at an
acceptable level, the Firm shall either revise the compensation plan or evaluation
process for that individual or apply safeguards to eliminate the threat or reduce it to an
acceptable level.

Examples of such safeguards include:

• Removing such members from the audit team; or

• Having a professional accountant review the work of the member of the audit
team.

A key audit partner shall not be evaluated on or compensated based on that partner’s
success in selling non-assurance services to the partner’s audit client. This is not
intended to prohibit normal profit-sharing arrangements between partners of a firm.

53
4 Maintenance and Use of the Firm Relationship Tracker (FRT)

4.1 The Firm Relationship Tracker List

The Firm must maintain a listing of all Clients to which Ethics and Independence
policies apply. The list shall be made available to all Partners and Professional
Employees. Additions and deletions to the list shall be made available, when they
occur, to all Partners and Professional Employees.

4.2 Responsibility for Maintaining the Firm Relationship Tracker

The Firm's Partner Responsible for Independence is responsible for updating the Firm
Relationship Tracker, immediately, whenever a Listed Client or Public Interest Client
is accepted or discontinued.

A discontinued Listed Audit Client will be maintained on the Firm Relationship

Tracker until after the successor auditor has issued its audit report on the subsequent
annual financial statements of the entity.

4.3 Responsibility for Consulting the Firm Relationship Tracker in respect of

financial, business, family or employment interests
The Firm and each Partner or Professional Employee is responsible for consulting the
Firm Relationship Tracker and taking such other precautions that are considered
necessary in the circumstances, to ensure compliance with Sections 2, 3, 4, 6 and 7
hereof.

The Firm and its Partners or Professional Employees who grant discretionary
investment authority to others are reminded that it is their responsibility to
ensure compliance with these policies by the investment manager.

4.4 Responsibility for Consulting the Firm Relationship Tracker in respect of conflict
of interest
The Firm’s Partner Responsible for Independence is responsible for designing and
maintaining a system to ensure Partners and Professional Staff comply with these
Policies.

The Firm Relationship Tracker can assist partners and professional employees to
identify potential conflicts of interest in the services the Firm provide to clients,
particularly international groups.

The Firm and Partner or Professional Employee is responsible for consulting the Firm
Relationship Tracker and taking such other precautions that are considered necessary
in the circumstances, to ensure compliance with Sections 3.7, 6.3, 6. and 7 hereof.
When a partner or professional employee identifies a potential conflict of interest, the
Managing Partner of the Firm shall be informed to ensure that suitable safeguards
(including withdrawal from an engagement) are designed and implemented.

The Firm’s Partner Responsible for Independence is responsible for designing

and maintaining a system to ensure the Firm does not supply services to a Client
that would result in a breach of these Policies.

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5 Additional Policies Applicable to Public Interest Entity Audit Clients

5.1 Applicability
In addition to the policies for Assurance Clients, the following policies apply to all
Public Interest Entity Audit Clients of the Firm.

5.2 Rotation of Key Audit Partners

Any Key Audit Partner for a Public Interest Entity Audit Client shall be rotated after a
predefined period, normally seven years. A Partner rotating after a predefined period
shall not resume a Key Audit Partner role until a further period of time, normally two
years, has elapsed.

When a financial statement audit client becomes a Public Interest Entity, the length of
time a Key Audit Partner has served the audit client in that capacity shall be
considered in determining when the individual shall be rotated. However, a Key
Audit Partner may continue to serve in that capacity for an additional two years before
rotating off the Engagement.

The long association of other partners with an audit client that is a public interest
entity creates familiarity and self-interest threats. The significance of such threats
shall be evaluated and safeguards applied when necessary to eliminate the threats or
reduce them to an acceptable level.

Despite the above paragraphs key audit partners whose continuity is especially
important to audit quality may, in rare cases due to unforeseen circumstances outside
the firm’s control, be permitted an additional year on the audit team as long as the
threat to independence can be eliminated or reduced to an acceptable level by
applying safeguards. For example, a key audit partner may remain on the audit team
for up to one additional year in circumstances where, due to unforeseen events, a
required rotation was not possible, as might be the case due to serious illness of the
intended engagement partner.

When the Firm has only a few people with the necessary knowledge and experience to
serve as a key audit partner on the audit of a public interest entity, rotation of key
audit partners may not be an available safeguard. If an independent regulator in the
relevant jurisdiction has provided an exemption from partner rotation in such
circumstances, an individual may remain a key audit partner for more than seven
years, in accordance with such regulation, provided that the independent regulator has
specified alternative safeguards which are applied, such as a regular independent
external review.

5.3 Provision of Accounting, Bookkeeping and Payroll Services

The Firm shall not perform accounting, bookkeeping or payroll services for a Public
Interest Entity Audit Client.

55
 Accounting and bookkeeping services, which would otherwise not be permitted under
the above paragraph, may be provided to audit clients in emergency or other unusual
situations when it is impractical for the audit client to make other arrangements. This
may be the case when (a) only the Firm has the resources and necessary knowledge of
the client’s systems and procedures to assist the client in the timely preparation of its
accounting records and financial statements, and (b) a restriction on the Firm’s ability
to provide the services would result in significant difficulties for the client (for
example, as might result from a failure to meet regulatory reporting requirements). In
such situations, the following conditions shall be met:

a) Those who provide the services are not members of the audit team;
b) The services are provided for only a short period of time and are not expected to
recur; and
c) The situation is discussed with those charged with governance.

The Firm may provide accounting or bookkeeping services of a routine or mechanical

nature to divisions or subsidiaries of a Public Interest Entity Audit Client provided:

a) The services do not involve the exercise of judgement or making any managerial
decisions, and the Public Interest Audit Client accepts responsibility in writing for
the results of the work;
b) The Firm personnel providing the services do not participate in the audit; and
c) The divisions or subsidiaries for which the service is provided are collectively
immaterial to the Public Interest Entity Audit Client, or the services are
collectively immaterial to the divisions or subsidiaries.

5.4 Key Audit Partner and Senior Managing Partner Joining an Audit Client

When a key audit partner joins the Audit Client that is a Public Interest Entity as a
director or officer of the entity or an employee in a position to exert significant
influence over the preparation of the client’s accounting records or the financial
statements on which the firm will express an opinion independence would be deemed
to be compromised unless, subsequent to the partner ceasing to be a key audit partner,
the public interest entity had issued audited financial statements covering a period of
not less than twelve months and the partner was not a member of the audit team with
respect to the audit of those financial statements.

When the individual who was the firm’s Senior or Managing Partner (Chief Executive
Officer or equivalent) joins an Audit Client that is a Public Interest Entity as an
employee in a position to exert significant influence over the preparation of the
entity’s accounting records or its financial statements or as a director or officer of the
entity independence would be deemed to be compromised unless twelve months have
passed since the individual was the Senior or Managing Partner (Chief Executive or
equivalent) of the firm.

Independence is not deemed to be compromised, if as a result of a business

combination, a key audit partner or the individual who was the firm’s former Senior

56
 or Managing Partner is in a position as described in the preceding two paragraphs,
and:
a) The position was not taken in contemplation of the business combination;
b) Any benefits or payments due to the former partner from the firm have been
settled in full, unless made in accordance with fixed pre-determined arrangements
and any amount owed to the partner is not material to the firm;
c) The former partner does not continue to participate or appear to participate in the
firm’s business or professional activities; and
d) The position held by the former partner with the audit client is discussed with
those charged with governance.

5.5 Audit Clients Listed on a Stock Exchange in Another Country

When the Firm accepts an audit of a Client whose securities are listed on a stock
exchange in another country, or a subsidiary or affiliate of an entity listed on a stock
exchange in another country, it shall:

a) Become familiar with any additional independence requirements applicable to the

country where the entity is listed; and
b) Ensure that the Firm, all members of the Assurance Team and their Immediate
Families, and all other personnel of the Firm who are subject to such requirements
comply with all additional requirements.

5.6 Valuation Services

The Firm shall not provide a valuation service if the valuations would have a material
effect, separately or in the aggregate, on the financial statements on which the Firm
will express an opinion.

5.7 Taxation Services

Except in emergency situations, in the case of an audit client that is a public interest
entity, the Firm shall not prepare tax calculations of current and deferred tax liabilities
(or assets) for the purpose of preparing accounting entries that are material to the
financial statements on which the firm will express an opinion.

The preparation of calculations of current and deferred tax liabilities (or assets) for an
audit client for the purpose of the preparation of accounting entries, which would
otherwise not be permitted under this section, may be provided to audit clients in
emergency or other unusual situations when it is impractical for the audit client to
make other arrangements. This may be the case when (a) only the firm has the
resources and necessary knowledge of the client’s business to assist the client in the
timely preparation of its calculations of current and deferred tax liabilities (or assets),
and (b) a restriction on the firm’s ability to provide the services would result in
significant difficulties for the client (for example, as might result from a failure to
meet regulatory reporting requirements). In such situations, the following conditions
shall be met:
a) Those who provide the services are not members of the audit team;
b) The services are provided for only a short period of time and are not expected to
recur; and
c) The situation is discussed with those charged with governance.

5.8 Internal Audit Services

The Firm shall not provide internal audit services that relate to:

57
 a) A significant part of the internal controls over financial reporting;
b) Financial accounting systems that generate information that is, separately or in
aggregate, significant to the client’s accounting records or financial statements on
which the firm will express an opinion; or
c) Amounts or disclosures that are, separately or in the aggregate, material to the
financial statements on which the firm will express an opinion.

5.9 IT Systems Services

The Firm shall not provide services involving the design or implementation of IT
systems that (a) form a significant part of the internal control over financial reporting
or (b) generate information that is significant to the client’s accounting records or
financial statements on which the firm will express an opinion.

5.10 Recruiting Services

The Firm shall not provide the following recruiting services to an audit client that is a
public interest entity with respect to a director or officer of the entity or senior
management in a position to exert significant influence over the preparation of the
client’s accounting records or the financial statements on which the firm will express
an opinion:

• Searching for or seeking out candidates for such positions; and

• Undertaking reference checks of prospective candidates for such positions.

5.11 Materiality of Fees

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 shall 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 which of the safeguards below it will apply to reduce the threat
to an acceptable level, and apply the selected safeguard:

• Prior to the issuance of the audit opinion 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 regulatory body performs a review of that
engagement that is equivalent to an engagement quality control review (“a pre-
issuance review”); or
• After the audit opinion on the second year’s financial statements has been issued,
and before the issuance of the audit opinion 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 regulatory body performs
a review of the second year’s audit that is equivalent to an engagement quality
control review (“a post-issuance review”).

When the total fees significantly exceed 15%, the Firm shall determine whether the
significance of the threat is such that a post-issuance review would not reduce the
threat to an acceptable level and, therefore, a pre issuance review is required. In such
circumstances a pre-issuance review shall be performed.

58
 Thereafter, when the fees continue to exceed 15% each year, the disclosure to and
discussion with those charged with governance shall occur and one of the above
safeguards shall be applied. If the fees significantly exceed 15%, the Firm shall
determine whether the significance of the threat is such that a post-issuance review
would not reduce the threat to an acceptable level and, therefore, a pre-issuance
review is required. In such circumstances a pre-issuance review shall be performed.

5.12 Audit Clients becoming a Public Interest Entity

A non-assurance service provided to an audit client does not compromise the firm’s
independence when the client becomes a public interest entity if:
a) The previous non-assurance service complies with the provisions of this policy
that relate to audit clients that are not public interest entities;
b) Services that are not permitted under this policy for audit clients that are public
interest entities are terminated before or as soon as practicable after the client
becomes a public interest entity; and
c) The firm applies safeguards when necessary to eliminate or reduce to an
acceptable level any threats to independence arising from the service.

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60
6 Continuing Professional Education Requirements

6.1 New Employee Orientation

As a part of his or her new employee orientation, each newly hired Professional
Employee shall receive independence training consisting of the following elements:

 A clear non-technical explanation of these AOC Ethics and Independence policies

and how they apply to the Firm and the Professional Employee, his or her
immediate family and his or her other close relatives. This training must include
the requirement to:
a) Determine that a financial relationship is not prohibited prior to acquiring any
security, making or obtaining any loan, or establishing any depository, agency,
trust, brokerage or commodity futures account;
b) Monitor changes to the Firm's Prohibited Client Lists;
c) Self-report and cure any known policy violations;
d) Annually complete an independence compliance questionnaire; and
e) Provide such supporting information (e.g., tax return schedules, brokerage
account, retirement account and bank account statements) as may be
reasonably requested from time to time to establish his or her compliance with
the Firm's Ethics and Independence policies.

 A brief explanation of when other independence rules (e.g., local standards) apply
and the major differences between those requirements and the AOC ones.
 An explanation of the Firm's and AOC’s Prohibited Securities Lists and how to
access them. In addition, each professional shall be provided with a list of
financial institution, brokerage and futures commission merchant Clients for the
Firm or located in his or her community.
 If requested, assistance in completing his or her initial Independence Compliance
Questionnaire.

New Professional Employees hired at or above the Supervisor level shall receive
additional independence training relevant to his or her expected duties. Such training
shall generally be focused on inappropriate business relationships with Clients and
prohibited services and fee arrangements.

6.2 Continuing Independence Education for Continuing Professional Employees

Continuing Professional Employees shall receive the following continuing
independence education:
 Each Professional Employee shall receive a minimum of one hour of
independence training the year they begin employment with the firm, with an
additional hour of independence training after three years of employment. Such
training shall focus on relevant independence rules regarding investments, loans,
brokerage and commodity futures accounts, business relationships, employment
restrictions, and prohibited services and fee arrangements. In addition, such
training should focus on what a Professional Employee should do if he or she
seeks employment with, or is approached about employment by, a Client.

 All Partners and Professional Employees at or above the Manager level shall
receive a minimum of one hour of annual independence training. This training

61
 should focus on recent changes in relevant independence rules; common practice
problems and special considerations regarding recently introduced Firm products,
services and strategic alliances.

6.3 Training Specified as a Result of Disciplinary Action

A Partner or Professional Employee shall complete all independence training
specified in any Letter of Required Corrective Action issued by the firm as a result of
any disciplinary action taken against such Partner or Professional Employee.

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7 Disciplinary Actions for Policy Violations
7.1 Disciplinary Actions for Individual Violations
Partners and Professional Employees who violate the Firm's Ethics and Independence
policies will be subject to disciplinary action commensurate with the severity of the
violation, his or her history of prior violations, and other relevant factors, including
whether the Partner or Professional Employee knew or should have known that his or
her actions would result in a violation.

7.2 Exception for Good Faith Violations

Partners and Professional Employees who, in good faith and with appropriate
consultation as required by these policies, take actions that were at that time believed
to be permitted, but are subsequently determined to constitute violations, will not be
deemed to have committed a violation of the Firm's policies.

7.3 Exception for Inadvertent Violations

Financial interests which are acquired inadvertently (e.g., through an unsolicited gift
or inheritance) and which are disposed of as soon as practicable, but no later than 30
days after the Partner or Professional Employee has the knowledge of and the right to
dispose of the financial interest, will not be considered to be in violation of these
policies.

7.4 Determining the Severity of Violations

The severity of a violation will be judged by the Partner Responsible for
Independence (who may consult with the Managing Partner) based upon his or her
evaluation of all the relevant facts and circumstances, including the following:
a) Whether the violation is the first violation or a repeat violation.
b) The nature and materiality of the violation.
c) Whether the violation, in his or her judgement, was Inadvertent, Unintentional or
Intentional.
d) Whether the violator was assigned to the Engagement and, if so, his or her role on
the Engagement.
e) Whether the violator provided other Professional Services to the Client or its
Affiliates.
f) Whether the violator was assigned to the Firm location with the overall
responsibility for the Client or the Engagement.
g) Whether the violator was in the management or quality assurance “chain of
command”.
h) Whether the violation involves the financial interests and relationships of the
Partner or Professional Employee, or the financial interests and relationships of his
or her spouse or dependants.
i) Whether the violation constitutes a violation of professional standards in addition
to the Firm policies.
j) Whether the violation jeopardised, or resulted in the loss of, a Client or
Engagement
k) Whether the violation was self-reported or otherwise discovered.
l) Whether there is any indication that the violator attempted to avoid discovery of
the violation.
m) Whether the violator fully co-operated with all reasonable requests for
information.
n) Whether the violator fully co-operated with all requests to take action to eliminate
the violation.

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7.5 Range of Disciplinary Actions
Disciplinary actions may consist of any or any combination of the following actions:

a) Letter of Reprimand or Letter of Required Corrective Action.

b) Independence counselling and/or training.
c) Establishment of a probationary period with associated monitoring.
d) Client reassignment.
e) Restriction of authority.
f) Forfeiture of income (for Partners).
g) Termination of partnership interest and/or termination of employment.

Either the Partner Responsible for Independence or the Managing Partner may issue
Letters of Reprimand or Letters of Required Corrective Action, require independence
counselling or training and establish probationary periods of up to one year with
associated monitoring.

The Managing Partner has the additional authority to establish probationary periods of
up to two years, reassign Clients, restrict authority and terminate Professional
Employees.

Actions to forfeit the income of, or to terminate, Partners must be approved by the
management group of the Firm.

Nothing contained herein, however, shall be deemed to restrict the authority of the
Managing Partner to sanction or terminate any Professional Employee.

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Appendix A- Reference Sources for Ethics Rules

 IESBA Code of Ethics for Professional Accountants (ifac.org).

 Code of Ethics for Professional Accountants in the Philippines.

End of document

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