Code of Ethics

A Presentation to PICPA, 20 March 200
THE NEW CODE OF ETHICS FOR CPAs
Atty. Eranio L. Punsalan

Chairman Ethics Board
Philippine Institute of Certified Public Accountants
PICPA New code of ethics for CPAs
y Atty. Eranio L. Punsalan
Agenda Code of Ethics for Professional Accountants in the Philippines Modifications to the IFAC Code to consider Philippine regulatory requirements and circumstances Contents of Code of Ethics for Professional Accountants in the Philippines
Code of Ethics for Professional Accountants in the Philippines
What is the Code?
It is a 105-page document, 80% of which cover independence
rules and interpretations. Effectively superseding the old code which was issued by the PRC & BOA in 1978. It is based on IFACs International Code of Ethics for Professional accountants (with minor modifications). It demonstrates PICPAs (as member of IFAC) commitment to IFACs broad objective of developing and enhancing a coordinated worldwide accountancy profession with harmonized standard.
<footer> New code of ethics of CPAs
Page 5 29 May 2007
Mandatory
The Code is mandatory for all CPAs and applicable to all
professional services performed in the Philippines.

Failure to comply with Code may result in an investigation into
the CPAs conduct.

Effectivity date January 1, 2004.
Page 6 29 May 2007
Modifications to the IFAC Code to consider Philippine regulatory requirements and circumstances
Introduction, paragraph 16
It is modified to list the sources of technical and
professional standards in the Philippines as follows: - Board of Accountancy/PRC; - SEC; - Auditing Standards and Practices Council; - Accounting Standards Council; and - Relevant legislation.
Page 8 29 May 2007
Word corporation was deleted from Definitions.
- A corporate form for the professional practice of accountancy not allowed in the Philippines. Professional accountants: the phrase who are CPAs and who hold valid certificate issued by the Board of Accountancy was added. The phrase a sole proprietor was added to Professional accountants in public practice. Period of rotation of lead engagement partner was changed from 7 to 5 years.
Page 9 29 May 2007
Paragraphs deleted and modified.
Paragraph 10.10 Commission was deleted.
- Payment and receipt of commissions are not permitted in the Philippines. Advertising and solicitation - Paragraph 14.1 was modified to read as advertising and solicitation by individual professional accountants in public practice are not permitted in the Philippines; - Paragraphs 14.2 and 14.3 were deleted since advertising and solicitation are not permitted in the Philippines; and - Paragraph 14.8 includes additional examples relating to anniversaries and websites wherein publicity is acceptable.
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Contents of Code of Ethics for Professional Accountants in the Philippines
Introduction
It discusses the rationale for the adoption of the Code. It contains IFACs belief that the identity of the accountancy
profession is characterized worldwide by - Its endeavor to achieve a number of common objectives; and - Its observance of certain fundamental principles for that purpose. It is intended to serve as a model on which to base national ethical guidance. It will be the basis on which the ethical requirements (code of ethics, detailed rules, guidelines, standards of conducts) for professional accountants in each country should be founded.
Introduction
It discusses how IFACs role of
- Providing guidance; - Providing continuity of efforts; and - Promoting harmonization - saw the need to establish an international Code of Ethics for Professional Accountants as basis in each member country. (continued)
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Introduction
Unless a limitation is specifically stated, the objectives and
fundamental principles are equally valid for all professional accountants, whether they be in public practice, industry, commerce, the public sector or education. Characteristics distinguishing a profession: - Mastery of a particular intellectual skill, acquired by training and education; - Adherence by its members to a common code of values and conduct established by its administering body, including maintaining an outlook which is essentially objective; and - Acceptance of a duty to society as a whole. (
Introduction
To ensure the highest quality
of performance and to maintain public confidence in the profession, PICPA has adopted the IFAC Code of Ethics (with certain modifications).
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The public interest (paragraphs 9 to 13)
It discusses the accountancy professions responsibility to the
public, which consists of - Clients; - Credit grantors; - Governments; - Employers; - Employees; - Investors; - The business and financial community; and - Others who rely on the objectivity and integrity of professional accountants.
Public Interest, cont.
Independent auditors should help maintain the integrity and
efficiency of financial statements. Financial executives contribute to the efficient and effective use of the organizations resources. Internal auditors provide assurance about sound internal control system which enhances the reliability of the external financial information of the employer. Tax experts help to establish confidence and efficiency, and the fair application of the tax system. Mgt consultants have a responsibility toward the public interest in advocating sound management decision-making.
Objectives (paragraph 14)
Code recognizes objectives of the accountancy
profession: - Work to highest standards of professionalism; - Attain highest levels of performance; and - Meet the public interest requirement. What are needed to meet these objectives? - Credibility; - Professionalism; - Quality of services; and - Confidence.
Fundamental principles (paragraphs 14-16)
Integrity Objectivity Professional competence and
due care
Confidentiality Professional behavior Technical standards
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Fundamental principles, cont.: Integrity - should be straightforward and honest in performing professional services. Objectivity - should be fair and should not allow prejudice or bias, conflict of interest or influence of others to override objectivity. Confidentiality - respect the confidentiality of information acquired during the course of performing professional services and should not use or disclose any such information without proper and specific authority or unless there is a legal/prof. duty to disclose. Professional behavior - act in a manner consistent with good reputation and refrain from any conduct which might bring discredit to the profession.
The code is divided into three parts
Part A applies to all professional accountants unless otherwise
specified; Part B applies to those in public practice; and Part C applies to employed professional accountants.
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Part A applicable to all professional accountants
Section 1 Integrity and objectivity Section 2 Resolution of ethical
conflicts Section 3 Professional competence Section 4 Confidentiality Section 5 Tax practice Section 6 Cross border activities Section 7 Publicity
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Integrity and Objectivity: Professional accountants should be aware of pressures exerted on them that may impair their objectivity. Relationships should be avoided which allow prejudice, bias, or influences of others to override objectivity. They have an obligation to ensure that personnel engaged on professional services adhere to the principle of objectivity. They should neither accept nor offer gifts or entertainment which might reasonably be believed to have a significant and improper influence on their professional judgment or those with whom they deal. They should avoid circumstances which would bring their professional standing into disrepute.
Tax practice *The CPA must put forward the best position in favor of a client, or an employer, provided the service is rendered with professional competence, does not in any way impair integrity, objectivity, and consistent with the law. *Tax advice or opinions of material consequences given to a client or an employer should not hold out to a client or an employer the assurance that the tax return prepared and the tax advice offered are beyond challenge. Instead, the professional accountant should ensure that the client or the employer are aware of the limitations attaching to tax advice and services so that they do not misinterpret an expression of opinion as an assertion of fact and should be recorded, either in the form of a letter or in a memorandum for the files.
Tax practice *The CPA must not be associated with any return if: - contains a false or misleading statement; - contains information furnished recklessly or without any real knowledge of whether they are true or false; -omits or obscures info required to be submitted and such omission or obscurity would mislead the revenue authorities.
Page 25 29 May 2007
New Accountancy law RA 9298 PD 692
The new accountancy law RA 9298 reiterated the definition of
the Practice of Accountancy as stated in PD 692 except the last paragraph which included the other 3 sectors to be in the practice of accountancy. RA 9298 separately defined the ff: - Practice of Public accountancy - Practice in Commerce and Industry - Practice in Education / Academe - Practice in Government
Page 26 29 May 2007
Part B applicable to all professional accountants in public practice

Section 8 Independence
- Members of assurance teams, firms and when applicable, network firms should be independent of assurance clients; - Conceptual approach to independence requires Independence of mind Independence in appearance
(continued)
Part B applicable to all professional accountants in public practice - Objective and structure (subsections 8.20 to 8.47) discusses approach to handling independence issues: Identifying threats to independence; Evaluating whether these threats are clearly insignificant; and In cases when threats are not clearly insignificant, identifying and applying appropriate safeguards to eliminate or reduce threats to an acceptable level (this decision should be documented).
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Interesting definitions
Audit client: When the audit client is a listed entity, audit client will always
include its related entities.

Audit Engagement: An assurance engagement to provide a high level of
assurance that financial statements are free of material misstatement, such as an engagement in accordance with Phil standards on auditing. It includes a statutory audit which is an audit required by national legislation. Assurance team: Includes others who can directly influence the outcome of the assurance engagement such as: - Those who recommend compensation; - Those who provide direct supervisory, management or oversight of the assurance engagement partner; - Those providing technical or industry specific support; - Those who provide quality control for the assurance engagement; and - All those within a network firm who can directly influence the outcome of the audit.
Firm covers
- A sole practitioner, partnership of professional accountants; - An entity that controls such parties; and - An entity controlled by such parties. Network firm: - An entity under common control, ownership or management with the firm or any entity that a reasonable and informed third party having knowledge of all relevant info; and - Would reasonably conclude as being part of the firm nationally or internationally.
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Professional services: any service requiring accountancy or
related skills performed by a professional accountant including accounting, auditing, taxation, management consulting and financial management services. Directors and officers: Those charged with the governance of an entity, regardless of their title. Publicity: Communication to the public of facts about the prof acct which are not designed for the deliberate promotion of that professional accountant. Advertising: Communication to the public with a view to procuring professional business. (sec 8 independence)
Page 31 29 May 2007
Subsections 8.100 to 8.211 of the Code --Independence-
Provide specific examples describing circumstances and
relationships that may create threats to independence; and

Illustrate via examples on how safeguards should be applied to
fulfill requirement for the members of the assurance team, the firm and network firm to be independent of an audit client.
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Approach to Independence This section takes into account threats to independence, accepted safeguards and public interest. Firms and members of the assurance teams have an obligation to identify and evaluate circumstances and relationships that create threats to independence and to take appropriate action to eliminate these threats or to reduce them to an acceptable level by the application of the safeguards.
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Threats to independence
Self-interest threats Self-review threats Advocacy threat Familiarity threat Intimidation threat
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Self-interest threats - examples
A direct financial interest or material indirect financial interest in
an assurance client; A loan or guarantee to or from an assurance client or any of its directors or officers; Undue dependence on total fees from an assurance client; Concern about the possibility of losing the engagement; Having close business relationship with assurance client; Potential employment with an assurance client; and Contingent fees relating to assurance engagements.
Page 35 29 May 2007
Self-review threats - examples
A member of the assurance team being, or having recently
been, an employee of the assurance client in a position to exert direct and significant influence over the subject matter of the assurance engagement; Performing services for an assurance client that directly affect the subject matter of the assurance engagement; and Preparation of original data used to generate financial statements or preparation of other records that are the subject matter of the assurance engagement.
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Familiarity threats - examples
A member of the assurance team having an immediate family member or
close family member who is: - A director or officer of the assurance client; and - An employee of the assurance client, and as such, is in a position to exert direct and significant influence over the subject matter of the assurance. A former partner of the firm being a director, officer of the assurance client or an employee in a position to exert direct and significant influence over the subject matter of the assurance engagement. Long association of a senior member of the assurance team with the assurance client. Acceptance of gifts or hospitality, unless the value is clearly insignificant, from the assurance client, or from its directors/ officers/ employees.
Intimidation threats - examples
Threat of replacement over a disagreement with the application
of an accounting principle
Pressure to reduce inappropriately the extent of work performed
in order to reduce fees
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Safeguards to eliminate threats or reduce them to acceptable level

Safeguards created by the
profession, legislation, or regulation; Safeguards within the assurance client; and Safeguards within the firms own systems and procedures.
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Safeguards created by the profession, legislation or regulation
Educational, training and experience requirements for entry into
profession; Continuing education requirements; Professional standards and monitoring disciplinary processes; External review of a firms quality control system; and Legislation governing the independence requirements of the firm.
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Safeguards within the assurance client
When the assurance clients management appoints the firm,
persons other than management ratify or approve the appointment; The assurance client has competent employees to make managerial decisions; Policies and procedures that emphasize the assurance clients commitment to fair financial reporting; Internal procedures that ensure objective choices in commissioning non-assurance engagements; and Corporate governance structure.
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Safeguards within the firms own systems and procedures
Removing individual from assurance team when his financial
interest/relationship create threat to independence;

Involving another firm to re-perform the non-assurance service
to the extent necessary to enable it to take responsibility for that service; Involving another firm to perform or re-perform part of the assurance engagement; and Policies and procedures to ensure members of the team do not make, or assume responsibility for, management decisions for the assurance client.
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What to do when there are inadvertent violations of independence rules? Sec. 8.18 of the Code of Ethics: There may be occasions when a firm, a network firm or an individual inadvertently violates this section. If such an inadvertent violation occurs, it would generally not compromise independence with respect to an assurance client provided the firm has appropriate quality control policies and procedures in place to promote independence and, once discovered, the violation is corrected promptly and any necessary safeguards are applied.
Page 43 29 May 2007
Section 9 professional competence and responsibilities regarding the use of non-accountants

Use of experts such as lawyers, actuaries, engineers,
geologists, valuers; and

Ensure that requirements of ethical behavior are observed by
the experts engaged by: - Asking individuals to read the appropriate ethical code - Requiring written confirmation of understanding of the ethical requirements; and - Providing consultation when potential conflicts arise.
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Section 10 Fees
Professional fees fair reflection of the value of professional
services performed, takes into account: - Skill and knowledge required; - Level of training and experience; - Time spent by each person engaged; and - Degree of responsibility performing services entails. Commissions payment and receipt not allowed.
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Section 11 Activities Incompatible with the Practice of Public Accountancy A professional accountant in public practice should not engage in any business, occupation or activity which impairs or might impair integrity, objectivity or independence, or the good reputation of the profession and therefore would be incompatible with the rendering of professional services.
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Section 12 Client Monies
Should not hold clients monies if there is reason to believe that
they were obtained from, or are to be used for, illegal activities. If entrusted with monies belonging to others, should: - Keep such monies separately from personal or firm monies; - Use such monies only for the purpose for which they were intended; and - Be ready at all times to account for those monies to any persons entitled to those monies.
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Section 13 Relations with Other Professional Accountants in Public Practice

Services or advice of professional accountant
having special skills may be sought in one or other of the following ways: - By the client After prior discussion and consultation with the existing accountant; Specific request or recommendation of the existing accountant; and Without reference to the existing accountant. - By the existing accountant with due observance of the duty of confidentiality
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Superseding another professional accountant in public practice.
- Need to communicate with predecessor to inquire if there are any reasons not to accept the appointment. - Extent of discussion of the affairs of the client with the incoming accountant depends on: Whether the clients permission to do so has been obtained; and The legal or ethical requirements relating to such disclosure. - Incoming accountant should treat in the strictest confidence, and give due weight to, any information provided by the exiting accountant.
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Why communicate with the predecessor auditor?
- To protect a professional accountant in public practice from accepting an appointment in circumstances where all the pertinent facts are not known; - To protect the minority proprietors of a business who may not be fully informed of the circumstances in which the change is proposed; and - To protect the interests of the exiting accountant when the propose change arises from, or is an attempt to interfere with, the conscientious exercise of the exiting accountant's duty to act as an independent professional.
Section 14 Advertising and Solicitation
Not permitted What is permissible?
- Publicity is acceptable provided: It has as its object the notification to the public or such sectors of the public are concerned, of matters of fact in a manner that is not false, misleading or deceptive; It is in good taste; It is professionally dignified; and It avoids frequent repetition of, and any undue prominence being given to the name of the CPA in public practice.
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Examples of publicity activities that are acceptable:
- Appointment and awards; - Professional accountants seeking employment or professional business; - Directories; - Books, articles, interviews, lectures, radio and TV appearances; - Training courses, seminars, etc.; - Booklets and documents containing technical information; - Staff recruitment;
(continued)
- Brochures and firm directories - Stationery and nameplates - Newspaper announcements - Inclusion of name of the CPA in a document issued to client - Anniversaries - Websites
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Part C- Applicable to employed professionals
Relevant to professional
accountants working in industry, commerce, the public sector, or education.
Page 54 29 May 2007
Section 15 Conflict of loyalties
Loyalty to employer or to the profession?
- Normal priority is to support his or her organizations legitimate and ethical objectives and the rules and procedures drawn up in support of them. What does an employed professional cannot legitimately be required to do? - Break the law; - Breach the rules and standards of their profession; - Lie to or mislead those acting as auditors to the employer; and - Put their name to or otherwise be associated with a statement which materially misrepresents the facts.
Conflict of loyalties -Employed professional accountants owe a duty of loyalty to their employer as well as to the profession and there may be times when the two are in conflict. An employees normal priority should be to support his or her organizations legitimate and ethical objectives and the rules and procedures drawn up in support of them. Differences in view about the correct judgment on accounting or ethical matters should normally be raised and resolved within the org, initially with the employees immediate superior and possibly thereafter, where disagreement on ethical issue remains, with higher levels of management or non-executive directors.
Conflict of interest If employed accountants cannot resolve any material issue involving a conflict between their employers and their professional requirements, they may, after exhausting all other relevant possibilities, have no other recourse but to consider resignation.
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Section 17 Professional competence
When asked to undertake significant tasks for which he or she
has not had sufficient specific training or experience, he should not mislead the employer as to the degree of expertise or experience he or she possesses, and where appropriate, expert advice and assistance should be sought.
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Section 18 Presentation of Information
The professional accountant is expected to present financial
information fully, honestly and professionally and so that it will be understood in its context.
Financial and non-financial information should be maintained in
a manner that describes clearly the true nature of business transactions, assets or liabilities, and classifies and records entries in a timely and proper manner.
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THANK YOU! THE END!
THE NEW CODE OF ETHICS FOR CPAs
Atty. Eranio L. Punsalan

Chairman Ethics Board
Philippine Institute of Certified Public Accountants

Code of Ethics

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A Presentation to PICPA, 20 March 200

THE NEW CODE OF ETHICS FOR CPAs

Atty. Eranio L. Punsalan

PICPA New code of ethics for CPAs

y Atty. Eranio L. Punsalan

A Presentation to PICPA, 20 March 200

Code of Ethics for Professional Accountants in the Philippines

y Atty. Eranio L. Punsalan

A Presentation to PICPA, 20 March 200

Code of Ethics for Professional Accountants in the Philippines

What is the Code?

It is a 105-page document, 80% of which cover independence

<footer> New code of ethics of CPAs

Page 5 29 May 2007

Code of Ethics for Professional Accountants in the Philippines

The Code is mandatory for all CPAs and applicable to all

professional services performed in the Philippines.

the CPAs conduct.

<footer> New code of ethics of CPAs

Page 6 29 May 2007

y Atty. Eranio L. Punsalan

A Presentation to PICPA, 20 March 200

It is modified to list the sources of technical and

<footer> New code of ethics of CPAs

Page 8 29 May 2007

y Atty. Eranio L. Punsalan

A Presentation to PICPA, 20 March 200

Word corporation was deleted from Definitions.

<footer> New code of ethics of CPAs

Page 9 29 May 2007

Paragraphs deleted and modified.

Paragraph 10.10 Commission was deleted.

y Atty. Eranio L. Punsalan

A Presentation to PICPA, 20 March 200

Contents of Code of Ethics for Professional Accountants in the Philippines

Contents of Code of Ethics for Professional Accountants in the Philippines

y Atty. Eranio L. Punsalan

A Presentation to PICPA, 20 March 200

Contents of Code of Ethics for Professional Accountants in the Philippines

It discusses how IFACs role of

<footer> New code of ethics of CPAs

Page 13 29 May 2007

Contents of Code of Ethics for Professional Accountants in the Philippines

Unless a limitation is specifically stated, the objectives and

y Atty. Eranio L. Punsalan

A Presentation to PICPA, 20 March 200

Contents of Code of Ethics for Professional Accountants in the Philippines

To ensure the highest quality

<footer> New code of ethics of CPAs

Page 15 29 May 2007

Contents of Code of Ethics for Professional Accountants in the Philippines

The public interest (paragraphs 9 to 13)

It discusses the accountancy professions responsibility to the

y Atty. Eranio L. Punsalan

A Presentation to PICPA, 20 March 200

Public Interest, cont.

Independent auditors should help maintain the integrity and

Contents of Code of Ethics for Professional Accountants in the Philippines

Objectives (paragraph 14)

Code recognizes objectives of the accountancy

y Atty. Eranio L. Punsalan

A Presentation to PICPA, 20 March 200

Contents of Code of Ethics for Professional Accountants in the Philippines