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CHAPTER SIX

THE CODE OF ETHICS


FOR CPAs IN THE
PHILIPPINES
Introduction
In order to maintain public confidence in the profession, it is necessary for its
members to be regulated.
One of the means for regulating the profession is the adoption and enforcement of a
Code of Ethics.

Code of Ethics for CPAs in the


Philippines
Ethics has been appropriately described as the bedrock
of the accountancy profession as it is also in the other
professions. When ethics is lacking, the foundation of the
profession crumbles.
Special Need for Ethical Conduct
Professional means a responsibility for conduct that extends beyond
satisfying the persons responsibilities to himself or herself, recognizes a
responsibility to the public, to the client, and to fellow practitioners, including
honorable behavior, even if this means personal sacrifice.
A high level of professional conduct is based on the need for public confidence
in the quality of service by the profession, regardless of the individual
providing it.
For CPAs, it is essential that clients and external financial statement users
have confidence in the quality of the CPAs financial reporting and other
services.
It is not practical for users to evaluate the quality of the performance of most
professional services because of their complexity.
This is where the role of the PRC and the various professional regulatory
boards comes in by requiring that a profession should have a code of ethics.
Public confidence in the quality of professional services is enhanced when the
professional association encourages high standards of performance and
conduct on the part of all its members.
Code of Ethics for Accountants
The New Code of Ethics is based n the International Code of Ethics for
Professional Accountants developed by the International Federation of
Accountants (IFAC).
All CPAs in the Philippines are expected to comply with the ethical
requirements of the Code and other ethical requirements that may be
adopted by PICPA and approved by the Board of Accountancy and PRC.
Apparent failure to do so may result in an investigation into the CPAs
conduct.

Note:
In July 2009, the International Ethics Standards Board of Accountants (IESBA) issued a revised
Code of Ethics, clarifying the requirements for all professional accountants and significantly
strengthening the independence requirements of all auditors. The revised IESBA Code is
effective January 1, 2011, with early adoption permitted.
This Chapter is based on the IESBA Code of Ethics for Professional Accountants, which is
currently being reviewed for use in the Philippines as of this writing.
Part A General Application of the
Code
Section 100 Introduction and Fundamental Principles
A distinguishing mark of the accountancy profession is its acceptance of
the responsibility to act in the public interest. Therefore, a professionals
accountants responsibility is not exclusively to satisfy the needs of an
individual client or employer. In acting in the public interest a
professional accountant should observe and comply with the ethical
requirements of the Code.
The Code is in three parts. Part A establishes the fundamental principles
of professional ethics for professional accountants and provides a
conceptual framework for applying these principles.
Part A General Application of the
Code
Fundamental Principles
Integrity To be straightforward and honest in all professional and business relationships.
Objectivity To not allow bias, conflict of interest or undue influence of others to override
professional or business judgments.
Professional Competence and Due Care To maintain professional knowledge and skill at
the level required to ensure that a client or employer receives competent professional
service based on current developments in practice, legislation and techniques. A CPA
should act diligently and in accordance with application technical and professional
standards.
Confidentiality To respect the confidentiality of information acquired as a result of
professional and business relationships and should not disclose any such information to
third parties without proper and specific authority unless there is a legal or professional
right or duty to disclose. Confidential information acquired as a result of professional and
business relationships should not be used for the personal advantage of the CPA or third
parties
Professional Behavior To comply with relevant laws and regulations and avoid any
action that discredits the profession.
Part A General Application of the
Code
Conceptual Framework
The conceptual framework provides guidance on fundamental ethical
principles. Professional accountants are required to apply this
conceptual framework to identify threats to compliance with the
fundamental principles, to evaluate their significance and, if such
threats are other than clearly insignificant to apply safeguards to
eliminate them or reduce them to an acceptable level such that
compliance with the fundamental principles is not compromised.
Part B (for professional accountants in public practice) and C (for
professional accountants in business) illustrate how the conceptual
framework is to be applied in specific situations.
Part A General Application of the
Code
Conceptual Framework (cont.)
The Code provides a framework to assist a professional accountant to
identify, evaluate and respond to threats to compliance with the
fundamental principles.
If identified threats are other than clearly insignificant, a professional
accountant should, where appropriate, apply safeguards to eliminate the
threats or reduce them to an acceptable level, such that compliance
with the fundamental principles is not compromised.
A professional accountant shall 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 with the fundamental principles.
Part A General Application of the
Code
Conceptual Framework (cont.)
A professional accountant shall take qualitative as well as quantitative
factors into account when considering the significance if a threat. If a
professional accountant cannot implement appropriate safeguards, the
professional accountant should decline or discontinue the specific
professional service involved, or where necessary resign from the client or
the employing organization.
A professional accountant may inadvertently violate a provision of the
Code. Such an inadvertent violation, depending on the nature and
significance of the matter, may not compliance with the fundamental
principles provided, once the violation is discovered, the violation is
corrected promptly and any necessary safeguards are applied.
When professional accountant encounters unusual circumstance in which
the application of a specific requirement of the Code would result in a
disproportionate outcome or an outcome that may not be in the public
interest, it is recommended that the professional accountant consult with a
member body or the relevant regulator.
Part A General Application of the
Code
Threats and Safeguards
Threats may be created by a broad range of relationships and
circumstances.
Safeguards may eliminate or reduce such threats to an acceptable level fall
into two broad categories:
1. Safeguards created by the profession, legislation or regulation
2. Safeguards in the work environment.
Certain safeguards may increase the likelihood of identifying or deterring
unethical behavior, such as
1. 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
behavior.
2. An explicitly stated duty to report breaches of ethical requirements.
Part A General Application of the
Code
Threats to Independence
Self-interest The threat that a financial or other interest will inappropriately
threat influence the professional accountants judgment or behavior

The threat that a professional accountant will not appropriately


evaluate the results of a previous judgment made or service
Self-review
performed within the professional accountants firm or employing
threats organization on which the accountant will rely when forming a
judgment as part of providing a current service
The threat that a professional accountant will promote a clients or
Advocacy employers position to the point that the professional accountants
threats objectivity is compromised.
The threat that due to a long or close relationship with a client or
Familiarity employer, a professional accountant will be too sympathetic to their
threats interests or too accepting of their work.
The threat that a professional accountant will be deferred fro acting
Intimidation objectively because of actual or perceived pressures, including
threats attempts to exercise undue influence over the professional
accountant
Part A General Application of the
Code

Safeguards Created by the Profession, Legislation or


Regulation
1.Educational training and experience requirements for entry into the
profession.
2.Continuing professional development requirements.
3.Corporate governance regulations.
4.Professional standards.
5.Professional or regulatory monitoring and disciplinary procedures.
6.External review by a legally empowered third party of the reports,
returns, communications or information produced by a professional
accountant.
Part A General Application of the
Code
Ethical Conflict Resolution
A professional accountant may be required t resolve a conflict in the
application of fundamental principles.
When initiating either a formal or informal conflict resolution process, the
following factors, either individually or together with other factors, may be
relevant to the resolution process:
1. Relevant facts;
2. Ethical issues involved;
3. Fundamental principles related to the matter in question;
4. Established internal procedures; and
5. Alternative courses of action.
Part A General Application of the
Code
Ethical Conflict Resolution
Having considered the relevant factors, a professional accountant shall
determine the appropriate course of action, weighing the consequences of
each possible course of action. If the matter remains unresolved, the
professional accountant may wish to consult with other appropriate persons
within the frim or employing organization for help in obtaining resolution.
Where a matter involves a conflict, or within, an organization, a professional
accountant shall determine whether to consult 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 professional accountant to document
the substance of the issue and details of any discussions held or decisions
made concerning that issue.
Part A General Application of the
Code
Ethical Conflict Resolution
If a significant conflict cannot be resolved, a professional accountant
may wish to obtain professional advice from the relevant professional
body or legal advisors.
If, after exhausting all relevant possibilities, the ethical conflict remains
unresolved, a professional accountant shall, where possible, refuse to
remain associated with the matter creating conflict.
Part A General Application of the
Code
Section 110 Integrity
The principle of integrity imposes an obligation on all professional accountant
to be straightforward and honest in professional and business relationships.
A professional accountant shall not knowingly be associated with reports,
returns, communications or other information where the professional
accountant believes that the information:
1. Contains a materially false or misleading statement;
2. Contains statements or information furnished recklessly; or
3. Omits or obscures information require to be included where such omission or
obscurity would be misleading.
When a professional accountant becomes aware that the accountant has
been associated with such information, the accountant shall take steps to be
disassociated from that information.
Part A General Application of the
Code
Sectors 120 Objectivity
The principle of objectivity imposes an obligation on all professional
accountants not to compromise their professional business judgment
because of bias, conflict of interest or the undue influence of others.
A professional accountant may be exposed to situations that may impair
objectivity. It is impracticable to define and prescribe all such situations.
A professional accountant shall not perform a professional service if a
circumstance or relationship biases or unduly influences the
accountants professional judgment with respect to that service.
Part A General Application of the
Code
Section 130 Professional Competence and Due Care
The principle of professional competence and due care imposes the
following obligations on professional accountants:
1. To maintain professional knowledge and skill at the level required to ensure
that clients or employers receive competent professional service; and
2. To act diligently in accordance with applicable technical and professional
standards when providing professional services.
Competent professional requires the exercise of sound judgment in
applying professional knowledge and skill in the performance of such
service.
Part A General Application of the
Code
Section 130 Professional Competence and Due Care
Professional competence may be divided into two separate phases: the
attainment of professional competence; and maintenance of professional
competence
The maintenance of professional competence requires a continuing
awareness and an understanding of relevant technical professional and
business developments.
Diligence encompasses the responsibility to act in accordance with the
requirements of an assignment, carefully, thoroughly and on a timely basis.
Where appropriate, a professional accountant shall 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.
Part A General Application of the
Code
Section 140 Confidentiality
The principle of confidentiality imposes an obligation on professional
accountants to refrain from:
1. 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 disclose;
and
2. Using confidential information acquired as a result of professional and business
relationships to their personal advantage or the advantage of third parties.
A professional accountant shall maintain confidentiality even in a social
environment, being alert to the possibility of inadvertent disclosure,
particularly to a close business associate or a close or immediate family
member.
Part A General Application of the
Code
Section 140 Confidentiality
A professional accountant shall maintain confidentiality of information
disclosed by a prospective client or employer.
The need to comply with the principle of confidentiality continues even
after the end of relationships between a professional accountant and a
client or employer.
In deciding whether to disclose confidential information, professional
accountants should consider the following points:
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;
Part A General Application of the
Code
Section 140 Confidentiality
Whether all the relevant information is known and substantiated, to the
extent it is practicable; when situation involves unsubstantiated facts,
incomplete, information or unsubstantiated conclusions, professional
judgment should be used in determining the type of disclosure to be made, if
any; and
The type of communication that is expected and to whom it is addressed; and
Whether the parties to whom the communication is addressed are appropriate
recipients.
Part A General Application of the
Code
Circumstances where Disclosure of Confidential Information by
CPAs may be appropriate
1. Disclosure is permitted by law and is authorized by the client or the
employer.
2. Disclosure is required by law, for example:
Production of documents or other provision of evidence in the course of legal
proceedings; or
Disclosure to the appropriate public authorities of infringements of the law
that come to light; and
3. There is a professional duty or right to disclose, when not prohibited by
law:
To comply with the quality review of a member body or professional body;
To respond to an inquiry or investigation by a member body or regulatory
body;
To protect the professional interests of a professional accountant in legal
proceedings; or
To comply with technical standards and ethics requirements.
Part A General Application of the
Code
Section 150 Professional Behavior
The principle of professional behavior imposes an obligation on
professional accountants to comply with relevant laws and regulations
and avoid any action that may bring discredit to the profession.
Professional accountants shall be honest and truthful and not make
exaggerated claims for the services they are able to offer, the
qualifications they possess, or experience they have gained; or make
disparaging references or unsubstantiated comparison to the work of
others.