An Introduction

CODE OF ETHICS FOR CPAS

WHAT IS ETHICS?

 It consists of moral principles and standards of

conduct.
 A branch of philosophy that deals with the
study of the rightness and wrongness of human
actions.
 Focuses on society as a whole or on a
particular group within the society
WHAT ARE THE OBJECTIVES OF PROFESSIONAL
ETHICS?
 To ensure high standards of competence
among a group’s member.
 To regulate and strengthen their relationships.

 To promote and protect the image of the

profession and the welfare of the community.
WHAT IS THE SCOPE OF PROFESSIONAL
ETHICS?
 A mixture of moral and practical concepts, with
the sprinkling of exhortation to ideal conduct
designed to invoke “right action” on the part of
the members of the profession concerned – all
reduced to rules which are intended to be
enforceable, to some extent at least, by
disciplinary action.
WHY THERE IS A NEED OF PROFESSIONAL
ETHICS?
 Responsibility to serve the public.
 Complex body of knowledge.

 Standards of admission to the profession.

 Need for public confidence.

A brief summary

CODE OF ETHICS FOR CPAS

THE PUBLIC INTEREST

 A collective well-being of the community of

people and the institutions the professional
accountants serves.
 Responsibility to serve the public

1. Objectivity

2. Integrity

 Need for public confidence.

OBJECTIVES

 To work to the highest standard of

professionalism
 To attain the highest level of performance

 To meet the public interest requirements

BASIC NEEDS TO MEET THE OBJECTIVES

 Credibility
 Professionalism

 Quality of Services

 Confidence
FUNDAMENTAL PRINCIPLES

 Integrity
 Objectivity

 Professional competence and due care

 Confidentiality

 Professional behavior
THE CODE

 Provides guidance as to application in practice

of the objectives and fundamental principles
with regard to a number of typical situations
occurring in the accountancy profession.
SECTION 1. INTEGRITY AND OBJECTIVITY
What is integrity?
It implies not merely honesty but fair dealing and
truthfulness.

What is objectivity?
Being fair, intellectually honest and free of conflict of
interest.

Regardless of service or capacity, professional accountants

should protect the integrity of their professional services and
maintain objectivity in their judgment.
FACTORS TO BE CONSIDERED
 Possibility of pressures
 Reasonableness should prevail in establishing
standards for identifying relationships that are
likely to or appear to impair objectivity
 Avoidance in relationships that will allow prejudice,
bias or influences that may override objectivity
 Ensure that personnel engaged in professional
services adhere to principle of objectivity
 Non-acceptance or offering of gifts or
entertainment to those with whom dealt with
SECTION 2. RESOLUTION OF ETHICAL CONFLICTS

 Professional accountant should be conscious

of and be alert to factors which give rise to
conflict of interest.
FACTORS AND RESOLUTION
 Pressure from overbearing
supervisor, manager,
director or partner or family
or personal relationships
 Asked to act contrary to
technical or professional
standards
 Divided loyalty between the
superior and professional
standards of conduct
 Misleading information is
published to the advantage
of the employer or client
Review the conflict
with the immediate
superior
If not resolved with the
immediate superior,
notify the latter of the
decision to go to the
next higher level
If it appears that the
superior in involved in
the conflict problem,
go to the next higher
level of management
FACTORS AND RESOLUTION

When the immediate superior is the CEO, the next

higher reviewing committee is the Executive
Committee, Trustees r partner’s Management’s
Committee

Seek counseling and advise on a confidential basis

with an independent advisor or the applicable
accountancy or regulatory body to obtain an
understanding of the possible courses of action.

If ethical conflicts still exists, resign and to submit

an information memorandum to an appropriate
representative of the organization.
SECTION 3. PROFESSIONAL COMPETENCE
Attainment of professional Maintenance of professional
competence: competence:
1. Education 1. Continuing awareness of
2. Training development n
3. Examination
accountancy profession
2. Adopt a program
4. Experience
designed to ensure
quality control in the
performance of
professional services
consistent with
international and national
pronouncements
SECTION 4. CONFIDENTIALITY

 Respect of the  Non-usage of

confidentiality of confidential information
information about the for personal or third party
client’s or employer’s advantage
affairs acquired in the
professional services
 It continues even after
the end of the
relationship between
the parties
SECTION 4. CONFIDENTIALITY
When disclosure of
confidential information is
permitted?
1. When authorized
2. When required by law thru
legal proceedings and
appropriate public
authorities infringements
of the law which comes
into light
3. There is a professional
duty or right to disclose
Factors to be considered in
making disclosures:
1. Consult legal counsel and
appropriate regulatory body
2. Whether or not all relevant
facts are substantiated,
professional judgment be
made
3. Type of communication and
addressee
4. Incurrence of any legal
liability for communicating
confidential information and
the consequences thereof
SECTION 5. TAX PRACTICE
 Putting forward the best  Ensure that the client
position in favor of the and employer are aware
client or an employer of the limitations of the
provided it is rendered tax advice and services
with professional to avoid
competence, with misinterpretation
integrity and objectivity  Take necessary steps to
and consistent with the ensure that the tax
law return is properly
prepared on the basis of
information received
SECTION 5. TAX PRACTICE
 Tax advice or opinions of
material consequence should
be recorded either in the form
of letters or memoranda for
the files
 Tax returns may be prepared
using estimates if the use of
such is acceptable or
impracticable under the
circumstances to obtain exact
data provided that amounts
are reasonable under the
circumstances
 Avoid association with any
return or communication that
contains:
1. False or misleading statement
2. Statements or information
furnished recklessly or w/o
any real knowledge of whether
they are true or false
3. Omits or obscures information
required to be submitted and
such omission or obscurity
would mislead the revenue
authorities
SECTION 5. TAX PRACTICE
 Reliance on information  If the PA learns of a material
provided by client or error or omission in a tax
employer provided that the return of a prior year or
information appears to be failure to file a required tax
reasonable, but the PA can: return, he/she has the
1. Makes use of the client’s responsibility to:
returns for prior years
whenever feasible
2. Make reasonable inquiries
when the information
presented appears to be
incorrect or incomplete
3. Make reference to the
books and records of the
business operations
SECTION 5. TAX PRACTICE

Advise of the error or

omission and recommend If the client or employer
that disclosure be made does not correct the error:
to the revenue authorities

Inform them that it is not Consider whether

possible to act for them in continued association with
connection with that them in any capacity is
return or other related consistent with
information submitted to professional
the authorities responsibilities
SECTION 5. TAX PRACTICE
 If PA concludes that a  Advise the client or
professional
relationship with them
is to be continued,
reasonable steps
should be taken to
ensure that the error is
not repeated in the
subsequent tax returns
employer of the position
and inform the revenue
authorities that the
relationships with the
client or employer has
ceased.
SECTION 6. CROSS BORDER ACTIVITIES

 Less strict ethical  Ethical requirements of

requirements of foreign Philippines is mandatory
country – Philippine and stricter in the above -
Code of Ethics prevail Philippine Code of Ethics
 Ethical requirements of prevail
foreign country is
stricter than the
Philippines – Foreign
country Code of Ethics
prevail
SECTION 7. PUBLICITY

 Do not use means  Do not denigrate the

which brings the work of other
profession into accountants
disrepute
 Do not make
exaggerated claims for
the services able to
offer, qualifications
possessed or
experience gained
SECTION 8. INDEPENDENCE
Independence of mind Independence in appearance
The state of mind that The avoidance of facts and
permits the provision of circumstances that are so
an opinion without being significant that a
affected by influences reasonable and informed
that compromise third party having
professional judgment, knowledge of all relevant
allowing an individual to information including
act with integrity, safeguards applied would
objectivity and reasonably conclude a
professional skepticism. firm’s or its members’
integrity, objectivity and
professional skepticism
had been compromised.
THREATS TO INDEPENDENCE

 Self-Interest threat
 Self-Review threat
 Advocacy threat
 Familiarity threat
 Intimidation threat
SELF-INTEREST THREAT
Definition:
It occurs when a firm or
members of an assurance
team could benefit from a
financial interest in or other
self-interest conflict with an
assurance client.
Examples:
1. Direct financial interest
2. Indirect material financial
interest
3. Loan or guarantee
4. Undue dependence on total
fees
5. Possibility of losing an
engagement
6. Close business relationship
7. Potential employment
8. Contingent fees
SELF-REVIEW THREAT
Definition:
It occurs when:
1. Any product or judgment of a
previous assurance
engagement or non-assurance
engagement needs to be re-
evaluated in reaching
conclusions on the assurance
engagement; or
2. When a member of an
assurance team was previously
a director or officer of the
assurance client or was an
employee in a position to exert
direct and significant influence
over the subject matter of the
assurance engagement.
Examples:
1. Director or employee of the
assurance client
2. Employee in a position to exert
direct and significant influence
over the subject matter of the
assurance engagement
3. Performing services to the
assurance client that directly
affect the subject matter of the
assurance engagement
4. Preparation of original data used
to generate financial statements
or preparation of other records
that are the subject matter of the
assurance engagement.
ADVOCACY THREAT
Definition:
It occurs when a firm or
member of an assurance
team promotes or maybe
perceived to promote an
assurance client’s position
or opinion to the point that
objectivity may or may be
perceived to be
compromised. Such may be
the case if a firm or
member of an assurance
team were to subordinate
their judgment to that of the
client.
Examples:
1. Dealer in or being a
promoter of share or other
securities in an assurance
client
2. Acting as an advocate on
behalf of an assurance
client in litigation or in
resolving disputes with third
parties
FAMILIARITY THREAT
Definition:
It occurs when by virtue of a close
relationship with an assurance client
its directors, officers or employees a
firm or a member of an assurance
team becomes too sympathetic to the
client’s interest.
Examples:
 Having an immediate family
member or close family member
who is a director or officer of the
assurance client
 Having an immediate family
member or close family member
who as an employee of the
assurance client, is in a position to
exert direct and significant
influence over the subject matter of
the assurance engagement
 A former partner of the firm being a
director, officer of an assurance client
is in a position to exert direct and
significant influence over the subject
matter of the assurance engagement
 Long association of a senior member
of an assurance team with the
assurance client
 Acceptance of gifts or hospitality
unless the value s clearly insignificant
from the assurance client, its
directors officers of employees
INTIMIDATION THREAT

Definition: Examples:
It occurs when a member  Threat of replacement
of the assurance team over a disagreement with
may be deterred from the application of an
acting objectively and accounting principle
exercising professional  Pressure to reduce
skepticism by threats, inappropriately the extent
actual or perceived from of work performed in
the directors, officers or order to reduce fees
employees of an
assurance client.
INTIMIDATION THREAT

Definition: Examples:
It occurs when a member  Threat of replacement
of the assurance team over a disagreement with
may be deterred from the application of an
acting objectively and accounting principle
exercising professional  Pressure to reduce
skepticism by threats, inappropriately the extent
actual or perceived from of work performed in
the directors, officers or order to reduce fees
employees of an
assurance client.
SAFEGUARDS TO THREATS TO INDEPENDENCE

 Safeguards created by the profession, legislation or

regulation
 Safeguards within the assurance client
 Safeguards within the firm’s own systems and
procedures
SAFEGUARDS CREATED BY THE PROFESSION,
LEGISLATION OR REGULATION
 Educational training and experience requirements for
entry into the profession
 Continuing education requirements
 Professional standards and monitoring and
disciplinary processes
 External review of a firm’s quality control systems
 Legislation governing the independence
requirements of the firm
SAFEGUARDS WITHIN THE ASSURANCE CLIENT

 When the assurance client’s management appoints the

firm, persons other than management ratify or approve
the appointment
 Assurance client has competent employees to make
managerial decisions
 Policies and procedures that emphasize the assurance
client’s commitment to fair financial reporting
 Internal procedures that ensure objective choices in
commissioning non-assurance engagements
 A corporate governance such as an audit committee that
provides appropriate oversight and communications
regarding a firm’s services
SAFEGUARDS WITHIN THE FIRM’S OWN
SYSTEMS AND PROCEDURES
 Firm leadership that stresses the importance of independence and the
expectation that members of assurance teams will act in the public
interest
 Policies and procedures to implement and monitor quality control of
assurance engagements
 Documented independence policies regarding identification of threats to
independence, the evaluation of the significance of these threats and the
identification and application of safeguards to eliminate or reduce the
threats, other than those that are clearly insignificant to an acceptable
level
 Internal policies and procedures to monitor compliance with firm policies
and procedures as they relate to independence
 Policies and procedures that will enable the identification of interests or
relationships between the firm’s members of the assurance team and
assurance clients
 Policies and procedures to monitor and if necessary manage the reliance
on revenue received from single assurance client
SAFEGUARDS WITHIN THE FIRM’S OWN
SYSTEMS AND PROCEDURES
 Using different partners and teams with separate reporting lines for the
provision of non-assurance services to an assurance clients
 Policies and procedures to prohibit individuals who are of members of the
assurance team from influencing the outcome of the assurance
engagement
 Timely communication of a firm’s policies and procedures and any
changes thereto to all partners and professional staff including
appropriate training and education thereon
 Designating a member of senior management as responsible for
overseeing the adequate functioning of the safeguarding system
 Means of advising partners and professional staff of those assurance
clients and related entities from which they must be independent
 A disciplinary mechanism to promote compliance with policies and
procedures
 Policies and procedures to empower staff to communicate to senior levels
within the firm any issue of independence and objectivity that concerns
them, this includes informing staff of the procedures open to them
OTHER SAFEGUARDS WITHIN THE FIRM’S OWN
SYSTEMS AND PROCEDURES
 Involving an additional professional accountant (not associated with the assurance
team) to review the work done or otherwise advise as necessary
 Consult third party
 Rotation of senior personnel
 Discuss independence issue at the audit committee or those charged with
governance
 Disclosing nature of services and extent of fees charged
 Policies and procedures to ensure members of the assurance team to not make or
assume responsibility for management decisions for assurance client
 Involve another firm to perform or re-perform part of the assurance engagement
 Remove an individual from the assurance team when that individual’s financial
interest or relationships create threat to independence

If safeguards are insufficient to eliminate the threats to independence or reduce

them an acceptably low level, the only course of action will be refusal to perform or
withdrawal from the assurance engagement.
ENGAGEMENT PERIOD

 Period of engagement starts when the assurance

team begins to perform assurance services and ends
when the assurance report is issued
 In case of recurring engagements, the period of the
assurance engagement ends with the notification by
either party that the professional relationship has
terminated or the issuance of the final assurance
report, whichever is latter.
SECTION 9. PROFESSIONAL COMPETENCE AND
RESPONSIBLITIES REGARDING THE USE OF
NON-ACCOUNTANTS
 Professional accountants should refrain from agreeing to perform professional
services which they are not competent to carry out unless competent advice and
assistance are obtained so as to enable them to satisfactorily perform such
services
 If the professional accountant does not have competence to perform a specific part
of the professional service, technical advice may be sought from experts such as
professional accountants, lawyers, actuaries, engineers, geologists, valuers.
 When using the work of an experts who are not professional accountants, steps
should be taken to see that the experts are aware of ethical requirements and the
degree of supervision and guidance will be needed depends upon the nature of
the engagement such as:
1. Asking individuals to read the appropriate ethical codes
2. Requiring written confirmation of understanding of ethical requirements
3. Providing consultation when potential conflicts arise.

If at any time the professional accountant is not satisfied that proper ethical
behavior can be respected or assured, the engagement should not be accepted
or if the engagement has commenced, it should be terminated.
SECTION 10. FEES AND COMMISSIONS
 For services rendered, professional accountant in public
practice is entitle to remuneration.
 When establishing professional fees, the following should be
taken into account;
1. Skill and knowledge required for the type of professional
services involved
2. Level of training and experience of the persons necessarily
engaged in performing the professional services
3. Time necessarily occupied by each person engaged in
performing the professional services
4. Degree of responsibility that performing those services
entails
 Professional fees are influenced by legal, social and
economic conditions
SECTION 10. FEES AND COMMISSIONS
 It should not make a representation that specific professional services in
current or future periods will be performed for either a stated fee,
estimated fee or fee range if it is likely at the time of representation that
such fees will be substantially increased and the prospective client is not
advised of the likelihood
 It is necessary to charge a pre-arranged fee with client taking into
account the factors 1-4
 Charging lower fee as compared to previous fees charge to client is not
unethical provided it is computed based on factors 1-4 and provided
that:
1. The quality of work will not be impaired and due care will be applied
2. Client will not be misled as to the precise scope of services that a quoted
fee is intended to cover and the basis on which future fees will be
charged
 Contingent fees are not to e charged when providing assurance
engagement except if fixed by court or public authority
SECTION 10. FEES AND COMMISSIONS

 Commission should not be paid nor accepted to

obtain a client or for referral of client to third party
 Payment and receipt of referral fees when no
services are performed are regarded as
commissions
 Entering ton arrangements for the purchase of
whole or part of an accounting practice requiring
payments to individual formerly engaged in the
practice or payments to their heirs or estates are
not regarded as commissions
SECTION 11. ACTIVITIES INCOMPATIBLE WITH
THE PRACTICE OF ACCOUNTANCY
 Simultaneous engagement in another business,
occupation or activity unrelated to professional
services should be regarded as inconsistent with
the practice of accountancy
 Rendering of two or more types of services
concurrently does not itself impair integrity,
objectivity or independence
SECTION 12. CLIENT’S MONIES
 Client monies should not be hold if they were
obtained or used for illegal activities
 If entrusted with money, PA should:
1. Separate from personal or firm’s monies
2. Use the money for which they are intended
3. It should be accounted for
 Withdrawals be made with the instruction of the
client
 All interests earned on client’s monies should be
credited to the client account
SECTION 13. RELATIONS WITH OTHER
PROFESSIONAL ACCOUNTANTS IN PUBLIC
PRACTICE
 The services or advice of a PA in public practice
having special skills may be sought in one of the
following ways:
1. By the client
2. By the existing accountant with due observance of
the duty of confidentiality
SECTION 13. RELATIONS WITH OTHER
PROFESSIONAL ACCOUNTANTS IN PUBLIC
PRACTICE
Inquire if there is an existing
accountant

Limit the services provided to the

specific assignment

Advice the client of the professional

obligation to communicate with the
existing accountant in writing
SECTION 14. ADVERTISING AND SOLICITATION
 Limited to the following:
1. Appointments and awards
2. Seeking employment of professional business
3. Directories
4. Books, articles, interviews, lectures, radio and television appearances
5. Training Courses, Seminars, etc.
6. Booklets and documents containing technical information
7. Staff recruitment
8. Publicity on behalf of clients
9. Brochures and firm’s directories
10. Stationery and name plates
11. Newspaper announcements
12. Anniversaries
13. Inclusion of the name of the PA in PP in the document issued by a client
14. Websites