Code of Ethics of Professional Accountants in the Philippines Kristine R. Apale Focus Notes
AC516 12:00 – 3:00
Fundamental Principles A. Integrity All professional accountants to be straightforward and honest A professional accountant should not be associated with reports or other information which: o Contain a materially false or misleading statements o Contain statements or information furnished recklessly o Omit or obscure information required where such omission/obscurity would be misleading B. Objectivity Not to compromise a professional accountant’s judgment because of bias, conflict of interest or undue influence of others C. Professional Competence and Due Care To maintain professional knowledge and skill at the level required and to act diligently in accordance with applicable technical and professional standards Professional Competence is divided into two (2) phases: 1. ATTAINMENT OF PROFESSIONAL COMPETENCE -Requires initially a high standard of general education, followed by specific education, training and examination 2. MAINTENANCE OF PROFESSIONAL COMPETENCE -Requires continuing awareness and understanding of relevant technical professional developments D. Confidentiality Obligation to refrain from: o Disclosing confidential information acquired without proper and specific authority or unless there is legal or professional right or duty to disclose; and o Using confidential information acquired to their/third parties’ personal advantage Ensure that the staff under the professional accountant’s control respect such duty of confidentiality. Compliance to such principle even after the end of the client/employer-professional accountant relationship Where disclosure may be appropriate: o Permitted by law, authorized by client or employer o Required by law (production of documents in the course of legal proceedings, disclosure to public authorities of law infringements that come to light) o Professional duty or right to disclose; when not prohibited by law (To comply with quality review or respond to an inquiry/investigation of a member or professional body, to protect professional interests of an accountant in legal proceedings, to comply with technical standards and ethics requirements) E. Professional Behavior to comply with relevant laws and regulations and avoid any action that may bring discredit to the profession professional accountants should be honest and truthful in marketing themselves and their work and should not: o make exaggerated claims on the services offered, qualifications possessed or experience gained o make unsubstantiated comparisons to the work of others F.
G. Threats and Safeguards Unique Threats to compliance with one or more fundamental principles that cannot be categorized H. Thr eat s N. Self inte rest
P. Self revi ew
R. Adv oca cy
T. Fa mili arit y
I.
May occur when O. Financia l or other interests of a professi onal account ant or of an immedia te or close family member Q. A previous judgmen t needs to be reevaluate d by the professi onal account ant responsi ble for that judgmen t S. A professi onal account promote sa position or opinion that subsequ ent activity may be compro mised U. A professi onal account
J. Part B: In Public Practice K. Including but not limited to: -financial interest in a client -undue dependence on total fees from a client -close business relationship with client -concern about possibility of losing a client -potential employment with a client -contingent fees relating to an assurance engagement
L. Part C: In Business M. Including but not limited to: -financial interests, loans or guarantees -incentive compensation arrangements -inappropriate personal use of corporate assets -concern over employment security -commercial pressure from outside the employing organization
-reporting on operation of financial systems -business decisions or data being after being involved in their design or subject to review and implementation justification by the same -having prepared the original data used to professional accountant in generate records which are the subject business responsible for matter of the engagement making those decisions or -a member of the assurance team, having preparing such data previously employed by the client in a position to exert direct and significant influence over the subject matter
-promoting shares in a listed entity who is a -furthering legitimate goals of financial statement audit client employing organizations -acting as an advocate on behalf of an through promoting assurance client in litigation or disputes organization’s position using with third parties false or misleading statements
-member of the assurance team having close or immediate family relationship with the client’s director/officer or employee in the position to exert direct or significant influence on the subject
-a professional accountant in the position to influence financial or non-financial reporting having an immediate or close family
ant becomes too sympath etic because of a close relations hip W. A professi onal account ant may be deterred from acting objectiv ely by threats, actual or perceive d.
V. Inti mid atio n
matter -accepting gifts or preferential treatment from client, unless value is clearly insignificant -long association of senior personnel with client
member who is in a position to benefit from such influence -long association with business contacts influencing business decisions -acceptance of a gift or preferential treatment, unless value is clearly insignificant
-Being threatened with dismissal/replacement/litigation -Being pressured to reduce inappropriately extent of work to reduce fees
-Threats of dismissal/replacement of a close or immediate family member -A dominant personality attempting to influence the decision-making process
X. Y. Z. AA.
Safeguards
AF. Safeguards created by the profession, legislation or regulation
AG.
S
afeguar ds in the work environ ment
AH. Firmwide safeg uards
AB. In Public Practice (Part B) AC.Including but not limited to:
AD.
In Business (Part C) AE. Incl uding but not limited to: -Educational, training and experience requirements for entry in the profession -Continuing professional development requirements -Corporate governance regulations -Professional standards -Regulatory monitoring and disciplinary procedures -External review of legally empowered third party of reports, communications and information produced -Leadership that stresses the importance of -Employing compliance with fundamental principles organization’s -Policies and procedures: systems of -- that implement and monitor quality control of corporate engagements, compliance with fundamental oversight, ethics principles and conduct -- enables the identification of interests or programs relationships between members of assurance -Strong internal team and clients controls -- monitor the reliance on revenue received from a -Appropriate single client disciplinary -Using different partners and engagement teams for practices the provision of non-assurance services to an -Policies and assurance client procedures to -Overseeing the adequate functioning of the firm’s implement and quality control system
AK. -Involving an additional professional accountant to monitor quality of employee review the work done Engagem -Consulting an independent third party, such as performance entcommittee of independent directors, etc. -Timely specif -Discussing ethical issues with those charged with communication ic governance of the client and disclosing to them of such policies safeg AI. the nature of service provided and extent of fees uards charged -Rotating senior assurance team personnel AM. Safeguards AN. -Client has competent employees to make managerial decisions implemented by client -Client has implemented internal procedures to ensure objective choices in commissioning nonassurance engagements -Client has corporate governance structure that provides appropriate oversight and communications AO. AP. Other Matters Concerning Professional Accountants in Public Practice (Part B of the Code) AT. Safeguards AQ. AR. AS. AV. Client Accep tance
AU.
P rofessio nal Appoint ment
AY.Engag ement Accep tance
BB.Chang es in Profes sional Appoi ntmen t
BD.
C onflicts of Interest BG. S econd Opinion s BI. Fees and Other Types of
BE.
BH.
AW. should consider whether acceptance would create any threats to compliance with fundamental principles; decline to enter if threats could not be reduced to an acceptable level AZ. should only agree to provide those services which the professional accountant is competent to perform BC. determine reasons for not accepting the engagement, such as circumstances that may threaten compliance to fundamental principles; still bound by confidentiality BF.
-Obtaining knowledge and understanding of the client and its activities
-Acquiring knowledge of relevant industries -Assigning sufficient staff with necessary competencies -Agreeing on realistic time frame for the performance -Discussing client’s affairs fully and freely with existing accountant -If unable to communicate with the latter, try to obtain information about any possible threats
-Notifying client of firm’s activities which may present conflict of interest -Use of separate engagement teams -Use of confidentiality agreements
There may be threat if second -Seeking client permission to contact existing accountant opinion is based on inadequate evidence -Providing the latter with copy of opinion
BJ. Fees charged should be a fair reflection -Making the client aware of the basis on which fees are charged of the value of work involved: -Quality control procedures BK. -skill and knowledge required -Review by an objective third party BL. -level of training and experience
Remune rations
BM. BO.
BN.
BQ.
M arketing Professi onal -
-time occupied by each person
Should not bring the profession into disrepute: make exaggerated claims on the services offered, qualifications possessed or experience gained make unsubstantiated comparisons to the work of others BR.Significance of such threat will depend on nature, value or intent behind offer
BP.
G BS. Safeguards should be considered ifts and otherwise, offer should not be Hospita accepted lity BT. Custody BU. Should not assume custody of -keep assets separate from personal or firm assets of client monies or other assets unless -use assets only for purpose intended Client permitted to do so by law -be ready to account for those assets Assets BV. Objectiv BW. A professional accountant in public practice who provides an assurance ity – All service is required to be independent of the assurance client. Services BX.Indepen dence – Assuran ce Engage ments BZ. CA. Possible threats to independence: CB. CE. If threat is clearly not CF. When it wouldn’t CC. CD. insignificant, such impair safeguards are available to independence of eliminate or reduce threat the firm: to acceptable level: CH. When -Dispose of the direct financial -The firm have established interest prior to becoming a policies and procedures interest is held as member of the assurance team that require all a trustee, such -Dispose of the indirect financial professionals to report interest should interest in total or to a sufficient promptly any breaches only be held amount that is no longer resulting from any when: material prior to becoming a acquisition of a -Interest held is not material member of the assurance team financial interest in an -Member of assurance team CG. -Remove the member of the assurance client does not have Financial assurance team from the The firm promptly notify significant influence intere assurance engagement the professional that over any investment -Excluding the individual from any sts financial interest should decision involving a substantive decision-making be disposed of financial interest in the concerning the assurance Disposal occurs at the assurance client engagement earliest practical date after identification of the issue, or professional is removed from assurance team CI. Loan CJ. If the firm or member of the assurance team makes a loan -If loan is immaterial and/or held under normal s and to an assurance client, that is not a bank or similar commercial terms or guar institutions, or guarantees such client’s borrowings, the procedures antee threat would be so significant no safeguard could s reduce the threat to an acceptable level CK.Close CM. The threat -Terminate the business relationship -Relationship is clearly
busin ess relati onshi ps with assur ance client s CL. Fami ly and perso nal relati onshi ps
would be so significant no safeguard could reduce the threat to an acceptable level. CO. Significan ce of the threat will depend on factors such as: CP. - position the immediate family holds with the client CQ. - role of the professional on the assurance team
-Reduce the magnitude of the insignificant to the firm and audit client relationship so the financial -Interest held is immaterial interest would be immaterial and -Interest does not give the relationship be insignificant investor the ability to -Refuse to perform the assurance control the closely held engagement entity -Removing the individual from the -Firm has established assurance team policies that require all -Structuring the responsibilities of professionals to report the assurance team so that the promptly any breaches professional does not deal with resulting from changes matters that are within the in employment status of responsibility of the immediate immediate or close family member family members -Policies to empower staff to -Responsibilities of the communicate to senior levels assurance team have any issue of independence and been restructured so the objectivity professional does not -To withdraw from the assurance deal with matters engagement concerning those of immediate family member -Additional care is given to review the work of the professional CX. -Considering the appropriateness or necessity of modifying the assurance plan for the assurance engagement -Involving an additional professional accountant who was not a member of the assurance team to review the work done -Quality control review of the assurance engagement -Individual concerned is not entitled to any benefits or payments from the firm unless these are made in accordance with fixed pre-determined arrangements -He does not continue to participate in the firm’s business activities
CS. If a member of the assurance team, partner or former partner of the firm has joined the assurance client, threat will depend on the following: CT. -position he has taken at the assurance client CU. -amount of involvement with the assurance team CV.- length of time passed since he was a member of the assurance team CW. - former position in the assurance team or firm CZ. Threat is -Policies and procedures to require the individual to notify the firm created when a when entering serious member of the employment negotiations with assurance team assurance client participates in the -Removal of the individual from the engagement engagement having reason to believe that he may join the client some time
DA.
in the future DC. If DURING the period covered by the assurance report, a member of the assurance team had served as an officer/director/employee of the assurance client in the position to exert significant influence over the subject matter, such individual should not be assigned to the assurance team DF. If PRIOR the -Involving an additional accountant to review the work done period covered by -Discussing the issue with those the assurance charged with governance, such report, a member as the audit committee of the assurance DB. Recent servi ce with assur ance client s
DK. Serving as an office r or direct or on the boar d of assur ance client s DQ. Long assoc iatio n of senio r perso nnel
team had served as an officer/director/em ployee of the assurance client in the position to exert significant influence over the subject matter, the threat will depend on the following factors: DG. -position of the individual with the assurance client DH. -length of time that passed since he left the assurance client DI. -role of the individual in the assurance team DL. In case of financial statement audit engagement, the only course of action is to refuse to perform or withdraw from the assurance engagement DO. When practice is specifically permitted under local law, the duties and functions undertaken should be limited to those of routine and formal administrative nature such as the preparation of minutes and maintenance of statutory returns
DR. Significan -Rotating the senior personnel off the assurance team ce of the threat -Involving an additional professional shall depend on: accountant who was not a DS. -length of time that member of the assurance team to the individual has review the work done been a member of -Independent internal quality the assurance team reviews DT.-role in the assurance team
DD.
DJ.
DM.
DP.
DW.
with assur ance client s
EA.Provi sion of nonassur ance servi ces to assur ance client s
EL.
EN. Valuation servi ces
DU. - structure of the firm DV.-nature of the assurance engagement DY.For financial statement audit clients that are listed entities:
-Rotation should be for a pre-defined period, normally no more than 5 years -Such individual rotating should not participate in the audit engagement until a further period of time, normally 2 years, has elapsed -Some degree of timing in the rotation may be necessary in some circumstances EB.The following list of activities would create threats so significant that the only safeguard to reduce it to an acceptable level would be refusal to perform the assurance engagement: EC. -authorizing, consummating a transaction or otherwise exercising authority on behalf of the assurance client ED.-determining which recommendation of the firm should be implemented EE. -reporting, in a management role, to those charged with governance EH.The following -Making arrangements so that personnel providing such activities may also services does not participate in create threats: the engagement EI. -having custody of -Involving additional professional client’s assets accountant to review the work EJ. -supervising done assurance client -Other relevant safeguards set out in employees in the national regulations performance of -Policies and procedures that their normal prohibit professional staff from recurring activities making management decisions EK.-preparing source for assurance clients -Discussing independence issues documents or regarding provision of nonoriginating data assurance with those charged evidencing with governance occurrence of transaction EM. Provision of accounting and bookkeeping services to audit clients that are listed and nonlisted entitites
DZ.
EF.
-Firm should not assume any -Services do not involve the managerial role exercise of judgment -Audit client should accept -Divisions or subsidiaries responsibility of the work results for which the services -Personnel providing the services provided are should not participate in the collectively immaterial audit to the audit client -Fees are clearly insignificant EO. Provision of valuation services material to FS and -Provision of tax services to FS audit clients involves significant degree of subjectivity, such -Provision of internal audit valuation services should not be provided / withdraw services provided that from the FS audit engagement personnel do not act in EQ.Provision of -Involving an additional professional capacity equal to a accountant to review work done valuation services member of client mgmt. -Confirming with client immaterial to FS understanding of the underlying -Provision of legal services
and do not involve assumptions of valuation a significant degree -Making arrangements so personnel providing such services do not of subjectivity participate in audit engagement
ES. Fees and prici ng
FA. Gifts and hospi tality
FC.Actu al or threa tened litiga tion
provided that members of assurance team are not involved in providing the service; audit client makes ultimate decision EW.
-Discussing extent and nature of fees charged with those charged with governance -Taking steps to reduce client dependency -External quality control reviews -Consulting third party, professional regulatory body or other accountant EY.If amount of fee for non-assurance engagement was EZ. agreed and contingent upon the result of an assurance engagement, the threats could not be reduced to an acceptable level; only acceptable action is not to accept such arrangements FB. A firm or member of assurance team should not accept -When value is clearly insignificant gifts or hospitality ET.Significance of the threat depends on: EU.-firm structure EV. -whether firm is well-established or newly created
FD. Significance of threat will depend on: FE. -materiality of litigation FF. -nature of assurance engagement FG. -whether it relates to prior assurance engagament
-Disclosing to those charged with governance the nature and extent of litigation -Removing anyone involved in the litigation from the assurance team -Involving an additional professional accountant to review work done -Withdraw from or refuse to accept the engagement
FH. FI. Professional Accountants in Business (Part C)
Professional accountants in business may be responsible: o solely or jointly for the preparation and reporting of financial and other information, which both their employing organizations and third parties may rely on o for providing effective financial management and competent advice on a variety of business-related matters A professional accountant in business may be a/an: o salaried employee o partner o director (whether executive or non-executive) o owner manager o volunteer or another working for one or more employing organization FJ. Potential Conflicts
A professional accountant in business may face pressure to: o Act contrary to law or regulation o Act contrary to technical or professional standards o Facilitate unethical or illegal earnings management strategies o Lie to, or otherwise intentionally mislead (including misleading by remaining silent) others, in particular: The auditors of the employing organization Regulators o Issue, or otherwise be associated with, a financial or non-financial report that materially misrepresents the facts, including statements in connection with, for example: The financial statements
Tax compliance Legal compliance Reports required by securities regulators Safeguards that may eliminate or reduce threats arising from pressures: o Obtaining advice where appropriate from within the employing organization, an independent professional advisor or a relevant professional body o The existence of a formal dispute resolution process within the employing organization o Seeking legal advice FK. Preparation and Reporting of Information
A professional accountant in business should maintain information for which the professional accountant in business is responsible in a manner that: o Describes clearly the true nature of business transactions, assets or liabilities o Classifies and records information in a timely and proper manner o Represents the facts accurately and completely in all material respects Where it is not possible to reduce the threat to an acceptable level, a professional accountant in business should refuse to remain associated with information they consider is or may be misleading
FL. FM.
Acting with Sufficient Expertise
Examples of circumstances that threaten the ability of a professional accountant in business to perform duties with the appropriate degree of professional competence and due care: o Insufficient time for properly performing or completing the relevant duties o Incomplete, restricted or otherwise inadequate information for performing the duties properly o Insufficient experience, training and/or education o Inadequate resources for the proper performance of the duties Safeguards that may eliminate or reduce threats: o Obtaining additional advice or training o Ensuring that there is adequate time available for performing the relevant duties o Obtaining assistance from someone with the necessary expertise o Consulting, where appropriate, with: Superiors within the employing organization Independent experts A relevant professional body FN.Financial Interests
Examples of circumstances that may create self-interest threats: o Holds a direct or indirect financial interest in the employing organization o Is eligible for a profit related bonus and the value of that bonus could be directly affected by decisions made by the professional accountant in business o Holds, directly or indirectly, share options in the employing organization o Holds, directly or indirectly, share options in the employing organization which are, or will soon be, eligible for conversion o May qualify for share options in the employing organization or performance related bonuses if certain targets are achieved Safeguards that may eliminate or reduce threats: o Policies and procedures for a committee independent of management to determine the level of form of remuneration of senior management o Disclosure of all relevant interests, and of any plans to trade in relevant shares to those charged with the governance of the employing organization, in accordance with any internal policies o Consultation, where appropriate, with superiors within the employing organization o Consultation, where appropriate, with those charged with the governance of the employing organization or relevant professional bodies o Internal and external audit procedures o Up-to-date education on ethical issues and the legal restrictions and other regulations around potential insider trading FO. Inducements
Receiving Offers o A professional accountant in business should assess the risk associated with all such offers and consider whether the following actions should be taken: Where such offers have been made, immediately inform higher levels of management or those charged with governance of the employing organization Inform third parties of the offer
Advise immediate or close family members of relevant threats and safeguards where they are potentially in positions that might result in offers of inducements Inform higher levels of management or those charged with governance of the employing organization where immediate or close family members are employed by competitors or potential suppliers of that organization
Making Offers o Sources of pressures to make offers: within the employing organization external individual or organization FP.
