CODE OF ETHICS FOR

PROFESSIONAL ACCOUNTANTS IN THE PHILIPPINES

INTRODUCTION

1. The International Federation of Accountants (IFAC)

believes that due to national differences of culture,
language, legal and social systems, the task of preparing
detailed ethical requirements is primarily that of the
member bodies in each country concerned and that they
also have the responsibility to implement and enforce
such requirements.

2. However, IFAC believes that the identity of the

accountancy profession is characterized worldwide by its
endeavor to achieve a number of common objectives and
by its observance of certain fundamental principles for
that purpose.

3. IFAC, therefore, recognizing the responsibilities of the

accountancy profession as such, and considering its own
role to be that of providing guidance, encouraging
continuity of efforts, and promoting harmonization, has
deemed it essential to establish an international Code of
Ethics for Professional Accountants to be the basis on
which the ethical requirements (code of ethics, detailed
rules, guidelines, standards of conducts, etc.) for
professional accountants* in each country should be
founded.

4. This international Code is intended to serve as a model on

which to base national ethical guidance. It sets standards
of conduct for professional accountants and states the
fundamental principles that should be observed by
professional accountants in order to achieve common
objectives. The accountancy profession throughout the
world operates in an environment with different cultures
and regulatory requirements. The basic intent of the
Code, however, should always be respected. It is also
acknowledged that, in those instances where a national
requirement is in conflict with a provision in the Code, the
national requirement would prevail.

5. A profession is distinguished by certain characteristics:

· 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
 administrating body, including maintaining an
outlook which is essentially objective; and

· Acceptance of a duty to society as a whole (usually

in return for restrictions in use of a title or in the
granting of a qualification).

6. Members’ duty to their profession and to society may at

times seem to conflict with their immediate self interest
or their duty of loyalty to their employer.

7. To ensure the highest quality of performance and to

maintain public confidence in the profession, the
Philippine Institute of Certified Public Accountants (PICPA)
has adopted the IFAC Code of Ethics which certain
modifications to take into consideration Philippine
circumstances

8. A distinguishing mark of a profession is acceptance of its

responsibility to the public. The accountancy profession's
public 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 to
maintain the orderly functioning of commerce. This
reliance imposes a public interest responsibility on the
accountancy profession. The public interest is defined as
the collective well-being of the community of people and
institutions the professional accountant serves.

9. A professional accountant’s responsibility is not

exclusively to satisfy the needs of an individual client or
employer. The standards of the accountancy profession
are heavily determined by the public interest, for
example:

· Independent auditors help to maintain the integrity

and efficiency of the financial statements presented
to financial institutions in partial support for loans
and to stockholders for obtaining capital;

· Financial executives serve in various financial

management capacities in organizations and
contribute to the efficient and effective use of the
organization’s resources;

· Internal auditors provide assurance about a sound

internal control system which enhances the
reliability of the external financial information of
the employer;
 · Tax experts help to establish confidence and
efficiency in, and the fair application of, the tax
system; and

· Management consultants have a responsibility

toward the public interest in advocating sound
management decision-making.

10. Professional accountants have an important role in

society. Investors, creditors, employers and other sectors
of the business community, as well as the government
and the public at large rely on professional accountants
for sound financial accounting and reporting, effective
financial management and competent advice on a variety
of business and taxation matters. The attitude and
behavior of professional accountants in providing such
services have an impact on the economic well-being of
their community and country.

11.Professional accountants can remain in this

advantageous position only by continuing to provide the
public with these unique services at a level which
demonstrates that the public confidence is firmly founded.
It is in the best interest of the worldwide accountancy
profession to make known to users of the services
provided by professional accountants that they are
executed at the highest level of performance and in
accordance with ethical requirements that strive to
ensure such performance.

12.In formulating their national code of ethics, member

bodies should therefore consider the public service and
user expectations of the ethical standards of professional
accountants and take their views into account. By doing
so, any existing “expectation gap” between the standards
expected and those prescribed can be addressed or
explained.

OBJECTIVES

14. The Code recognizes that the objectives of the

accountancy profession are to work to the highest
standards of professionalism, to attain the highest levels
of performance and generally to meet the public interest
requirement set out above. These objectives require four
basic needs to be met:

· Credibility
 In the whole of society there is a need for credibility
in information and information systems.

· Professionalism

There is a need for individuals who can be clearly

identified by clients, employers and other
interested parties as professional persons in the
accountancy field.

· Quality of Services

There is a need for assurance that all services

obtained from a professional accountant are carried
out to the highest standards of performance.

· Confidence

Users of the services of professional accountants

should be able to feel confident that there exists a
framework of professional ethics which governs the
provision of those services.

FUNDAMENTAL PRINCIPLES

15. In order to achieve the objectives of the accountancy

profession, professional accountants have to observe a
number of prerequisites or fundamental principles
16. the fundamental principles are:

· Integrity

A professional accountant should be

straightforward and honest in performing
professional services.*

· Objectivity

A professional accountant should be fair and should

not allow prejudice or bias, conflict of interest or
influence of others to override objectivity.

· Professional Competence and due Care

A professional accountant should perform

professional services with due care, competence
and diligence and has a continuing duty to maintain
 professional knowledge and skill at a level required
to ensure that a client or employer receives the
advantage of competent professional service based
on up-to-date developments in practice, legislation
and techniques.

· Confidentiality

A professional accountant should 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 or professional right or duty to
disclose.

· Professional Behavior

A professional accountant should act in a manner

consistent with the good reputation of the
profession and refrain from any conduct which
might bring discredit to the profession. The
obligation to refrain from any conduct which might
bring discredit to the profession requires IFAC
member bodies to consider, when developing
ethical requirements, the responsibilities of a
professional accountant to clients, third parties,
other members of the accountancy profession,
staff, employers, and the general public.

· Technical Standards

A professional accountant should carry out

professional services in accordance with the
relevant technical and professional standards.
Professional accountants have a duty to carry out
with care and skill, the instructions of the client or
employer insofar as they are compatible with the
requirements of integrity, objectivity and, in the
case of professional accountants in public practice *,
independence (see Section 8 below). In addition,
they should conform with the technical and
professional standards of the following;

 Board of Accountancy (BOA)/Professional

Regulation Commission (PRC);

· Securities and Exchange Commission (SEC)

· Auditing Standards and Practices Council (ASPC);

 · Accounting Standards Council (ASC);

· Relevant legislation.

THE CODE

17. The objectives as well as the fundamental principles are

of a general nature and are not intended to be used to
solve a professional accountant’s ethical problems in a
specific case. However, the code provides some guidance
as to the application in practice of the objectives and the
fundamental principles with regard to a number of typical
situations occurring in the accountancy profession.

18. The code set out below is divided into three parts:

· Part A applies to all professional accountants

unless otherwise specified.

· Part B applies only to those professional accountants in

public practice.

PART A – APPLICABLE TO ALL

PROFESSIONAL ACCOUNTANTS

SECTION 1

Integrity and Objectivity

1.1 Integrity implies not merely honesty but fair dealing and
truthfulness. The principle of objectivity imposes the
obligation on all professional accountants to be fair,
intellectually honest and free of conflicts of interest.

1.2 Professional accountants serve in many

different capacities and should
demonstrate their objectivity in varying circumstances.
Professional accountants in public practice undertake
assurance engagements, and render tax and other
management advisory services. Other professional
accountants prepare financial statements as a
subordinate of others, perform internal auditing services,
and serve in financial management capacities in industry,
commerce, the public sector and education. They also
educate and train those who aspire to admission into the
profession. Regardless of service or capacity, professional
accountants should protect the integrity of their
professional services, and maintain objectivity in their
judgment.

1.3 In selecting the situations and practices to be specifically

dealt within ethics requirements relating to objectivity,
adequate consideration should be given to the following
factors:

(a) Professional accountants are exposed to situations

which involve the possibility of pressures being
exerted on them. These pressures may impair their
objectivity.

(b) It is impracticable to define and prescribe all such

situations where these possible pressures exist.
Reasonableness should prevail in establishing
standards for identifying relationships that are
likely to, or appear to, impair a professional
accountant's objectivity.

(c) Relationships should be avoided which allow

prejudice, bias or influences of others to override
objectivity.

(d) Professional accountants have an obligation to

ensure that personnel engaged on Professional
services adhere to the principle of objectivity.

(e) Professional accountants 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. Professional accountants
should avoid circumstances which would bring their
professional standing into disrepute.

SECTION 2
Resolution of Ethical Conflicts

2.1 From time to time, professional accountants encounter

situations which give rise to conflicts of interest. Such
conflicts may arise in a wide variety of ways, ranging from
the relatively trivial dilemma to the extreme case of fraud
and similar illegal activities. It is not possible to attempt
to itemize a comprehensive check list of potential cases
where conflicts of interest might occur. The professional
accountant should be constantly conscious of and be alert
to factors which give rise to conflicts of interest. It should
be noted that an honest difference of opinion between a
professional accountant and another party is not in itself
an ethical issue. However, the facts and circumstances of
each case need investigation by the parties concerned.

2.2 It is recognized, however, that there can be particular

factors which occur when the responsibilities of a
professional accountant may conflict with internal or
external demands of one type or another. Hence:

· There may be the danger of pressure from an

overbearing supervisor, manager, director * or
partner; or when there are family or personal
relationships which can give rise to the possibility
of pressures being exerted upon them. Indeed,
relationships or interests which could adversely
influence, impair or threaten a professional
accountant's integrity should be discouraged.

· A professional accountant may be asked to act

contrary to technical and/or professional standards.

· A question of divided loyalty as between the

professional accountant's superior and the required
professional standards of conduct could occur.

· Conflict could arise when misleading information is

published which may be to the advantage of the
employer or client and which may or may not
benefit the professional accountant as a result of
such publication.
2.3 In applying standards of ethical conduct, professional
accountants may encounter problems in identifying
unethical behavior or in resolving an ethical conflict.
When faced with significant ethical issues, professional
accountants should follow the established policies of the
employing organization to seek a resolution of such
conflict. If those policies do not resolve the ethical
conflict, the following should be considered:

· Review the conflict problem with the immediate

superior. If the problem is nor resolved with the
immediate superior and the professional
accountant determines to go to the next higher
managerial level, the immediate superior should be
notified of the decision. If it appears that the
superior is involved in the conflict problem, the
professional accountant should raise the issue with
the next higher level of management. When the
immediate superior is the Chief Executive Officer
(or equivalent), the next higher reviewing level may
be the Executive Committee, Trustees, partners’
Management Committee.

· Seek counseling and advice on a confidential basis

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

· If the ethical conflict still exists after fully

exhausting all levels of internal review, the
professional accountant as a last resort may have
no other recourse on significant matters (e.g.,
fraud) than to resign and to submit an information
memorandum to an appropriate representative of
that organization.

2.4 Furthermore, Philippine local laws, regulations or

professional standards may require certain serious
matters to be reported to an external body as an
enforcement or regulatory authority (e.g. BOA/PRC, SEC)

2.5 Any professional accountant in a senior position should

endeavor to ensure that policies are established within his
or her employing organization to seek resolution of
conflicts.

2.6 Confidential counseling and advice should be available to

professional accountants who experience ethical conflicts.
SECTION 3

Professional Competence

3.1 Professional accountants should not portray themselves

as having expertise or experience they do not possess.

3.2 Professional competence may be divided into two separate

phases:

(a) Attainment of professional competence

The attainment of professional competence

requires initially a high standard of general
education followed by specific education, training
and examination in professionally relevant
subjects, and whether prescribed or not, a period of
work experience. This should be the normal pattern
of development for a professional accountant.

(b) Maintenance of professional competence

(i) The maintenance of professional

competence requires a continuing awareness
of development in the accountancy
profession including relevant national and
international pronouncements on
accounting, auditing and other relevant
regulations and statutory requirements.
(ii) A professional accountant should adopt a
program designed to ensure quality control
in the performance of professional services
consistent with appropriate national and
international pronouncements.

SECTION 4

Confidentiality

4.1 Professional accountants have an obligation to respect the

confidentiality of information about a client’s or
employer’s affairs acquired in the course of professional
services. The duty of confidentiality continues even after
the end of the relationship between the professional
accountant and the client or employer.
4.2 Confidentiality should always be observed by a
professional accountant unless specific authority has
been given to disclose information or there is a legal or
professional duty to disclose.
4.3 Professional accountants have an obligation to ensure
that staff under their control and persons from whom
advice and assistance are obtained respect the principle
of confidentiality

4.4 Confidentiality is not only a matter of disclosure of

information. It also requires that a professional
accountant acquiring information in the course of
performing professional services neither uses nor appear
to use that information for personal advantage or for the
advantage of a third party.

4.5 A professional accountant has access to much confidential

information about a client’s or employer’s affairs not
otherwise disclosed to the public. Therefore, the
professional accountant should be relied upon not to
make unauthorized disclosures to other persons. This
does not apply to disclosure of such information in order
properly to discharge the professional accountant’s
responsibility according to the profession’s standards.

4.6 It is in the interest of the public and the profession that

the profession’s standards relating to confidentiality be
defined, and guidance given on the nature and extent of
the duty of confidentiality and the circumstances in which
disclosure of information acquired during the course of
providing professional services shall be permitted or
required.

4.7 It should be recognized, however, that confidentiality of

information is part of statute or law, and therefore,
detailed ethical requirements may be determined by
Philippine law.

4.8 The following are examples of the points which should be

considered in determining whether confidential
information may be disclosed:

(a) When disclosure is authorized. When

authorization to disclose is given by the client or
the employer, the interests of all the parties
including those third parties whose interests might
be affected should be considered.
 (b) When disclosure is required by law. Examples of
when a professional accountant is required by law
to disclose confidential information are:

(i) To produce documents or to give evidence in

the course of legal proceedings; and

(ii) To disclose to the appropriate public

authorities infringements of the law which
come to light.

(c) When there is a professional duty or right to disclose:

(i) To comply with technical standards and

ethics requirements; such disclosure is not
contrary to this section;

(ii) To protect the professional interests of a

professional accountant in legal proceedings;

(iii) To comply with the quality review of a

member body or professional body; and

(iv) To respond to an inquiry or investigation by a

member body or regulatory body.

4.9 When the professional accountant has determined that

confidential information can be disclosed, the following
points should be considered:

· Whether or not all the relevant facts are known and

substantiated, to the extent it is practicable to do
so; when the situation involves unsubstantiated
fact or opinion, professional judgment should be
used in determining the type of disclosure to be
made, if any;

· What type of communications is expected and the

addressee; in particular, the professional
accountant should be satisfied that the parties to
whom the communication is addressed are
appropriate recipients and have the responsibility
to act on it; and

· Whether or not the professional accountant would

incur any legal liability having made a
communication and the consequences thereof.
 In all such situations, the professional accountants should
consider the need to consult legal counsel and/or the
professional regulatory body.

SECTION 5

Tax Practice

5.1 A professional accountant rendering professional tax

services is entitled to 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 and objectivity, and is in the opinion
of the professional accountant consistent with the law.
Doubt may be resolved in favor of the client or the
employer if there is reasonable support for the position.

5.2 A professional accountant 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.

5.3 A professional accountant who undertakes or assists in

the preparation of a tax return should advise the client or
the employer that the responsibility for the content of the
return rests primarily with the client or employer. The
professional accountant should take the necessary steps
to ensure that the tax return is properly prepared on the
basis of the information received.

5.4 Tax advice or opinions of material consequence given to a

client or an employer should be recorded, either in the
form of a letter or in memorandum for the files.

5.5 A professional accountant should not be associated with

any return or communication in which there is reason to
believe that it:

(a) Contains a false or misleading statement;

(b) Contains statements or information furnished

recklessly or without any real knowledge of
whether they are true or false; or
 (c) Omits or obscures information required to be
submitted and such omission or obscurity would
mislead the revenue authorities.

5.6 A professional accountant may prepare tax returns

involving the use of estimates if such use is generally
acceptable or if it is impractical under the circumstances
to obtain exact data. When estimates are used, they
should be presented as such in a manner so as to avoid
the implication of greater accuracy than exists. The
professional accountant should be satisfied that
estimated amounts are reasonable under the
circumstances.

5.7 In preparing a tax return, a professional accountant

ordinarily may rely on information furnished by the client
or employer provided that the information appears
reasonable. Although the examination or review of
documents or other evidence in support of the
information is not required, the professional accountant
should encourage, when appropriate, such supporting
data to be provided.

In addition, the professional accountant:

(a) Should make use of the client’s returns for prior

years whenever feasible;

(b) Is required to make reasonable inquiries when the

information presented appears to be incorrect or
incomplete; and

(c) Is encouraged to make reference to the books and

records of the business operations.

5.8 When a professional accountant learns of a material error

or omission in a tax return of a prior year (with which the
professional accountant may or may not have been
associated), or of the failure to file a required tax return,
the professional accountant has a responsibility to:

(a) Promptly advise the client or employer of the error

or omission and recommend that disclosure be
made to the revenue authorities. Normally, the
professional accountant is not obligated to inform
the revenue authorities, nor may this be done
without permission.

(b) If the client or the employer does not correct the

error, the professional accountant:
 (i) Should inform the client or the employer that
it is not possible to act for them in
connection with that return or other related
information submitted to the authorities; and

(ii) Should consider whether continued

association with the client or employer in any
capacity is consistent with professional
responsibilities.

(c) If the professional accountant concludes that a

professional relationship with the client or employer
can be continued, all reasonable steps should be
taken to ensure that the error is not repeated in
subsequent tax returns.

(d) A professional accountant may inform the revenue

authorities that there is no longer any association
with the return or other information involved and
that acting for the client or employer has ceased. In
these circumstances, the professional accountant
should advise the client or employer of the position
before informing the authorities and should give no
further information to the authorities without the
consent of the client or employer unless required to
do so by law.

SECTION 6

Cross Border Activities

6.1 When considering the application of ethical requirements

in cross border activities, a number of situations may
arise. Whether a professional accountant is a member of
the profession in one country only or is also a member of
the profession in the country where the services are
performed should not affect the manner of dealing with
each situation.

6.2 A professional accountant qualifying in one country may

reside in another country or may be temporarily visiting
that country to perform professional services. In all
circumstances, the professional accountant should carry
out professional services in accordance with the relevant
technical standards and ethical requirements. The
particular technical standards which should be followed
are not dealt within this section. In all other respects,
however, the professional accountant should be guided by
the ethical requirements set out below.
6.3 When a professional accountant performs services in a
country other than the home country and differences on
specific matters exist between ethical requirements of the
two countries, the following provisions should be applied:

(a) When the ethical requirements of the country in

which the services are being performed are less
strict than this Code, then this Code of Ethics of the
Philippines should be applied.

(b) When the ethical requirements of the country in

which services are being performed are stricter
than this Code, then the ethical requirements in the
country where services are being performed should
be applied.

(c) When the ethical requirements of the home

country are mandatory for services performed
outside that country and are stricter that set out in
(a) and (b) above, then the ethical requirements of
the home country should be applied.

SECTION 7
Publicity

7.1 In the marketing and promotion of themselves and their

work, professional accountants should:

(a) Not use means which brings the profession into disrepute;

(b) Not make exaggerated claims for the services they

are able to offer, the 3qualifications they possess,
or experience they have gained; and

(c) Not denigrate the work of other accountants.

PART B – APPLICABLE TO PROFESSIONAL

ACCOUNTANTS IN PUBLIC PRACTICE

SECTION 8

Independence

8.1 It is in the public interest and, therefore, required by this

Code, that members of assurance teams, firms and, when
applicable, network firms be independent of assurance
clients.
8.2 Assurance engagements are intended to enhance the
credibility of information about a subject matter by
evaluating whether the subject matter conforms in all
material respects with suitable criteria. The Philippine
Standards on Assurance Engagements issued by the
Philippine Auditing Standards and Practices Council
describe the objectives and elements of assurance
engagements to provide either a high or a moderate level
of assurance. The Philippine Auditing Standards and
Practice Council has also issued specific standards for
certain assurance engagements. For example, Philippine
Standards on Auditing provide specific standards for audit
(high level assurance) and review (moderate level
assurance) of financial statements.

Paragraphs 8.3 through 8.6 are taken from the Philippine

Standards on Assurance Engagements and describe the
nature of an assurance engagement. These paragraphs
are presented here only to describe the nature of an
assurance engagement. To obtain a full understanding of
the objectives and elements of an assurance
engagement, it is necessary to refer to the full text
contained in the Philippine Standards on Assurance
Engagements.

8.3 Whether a particular engagement is an assurance

engagement will depend upon whether it exhibits all the
following elements:

(a) A three party relationship involving:

(i) A professional accountant;

(ii) A responsible party; and

(iii) An intended user;

(b) A subject matter;

(c) Suitable criteria;

(d) An engagement process; and

(e) A conclusion.

The responsible party and the intended user will often be

from separate organizations but need not be. A
responsible party and an intended user may both be
within the same organization. For example, a governing
 body may seek assurance about information provided by
a component of that organization. The relationship
between the responsible party and the intended user
needs to be viewed within the context of a specific
engagement.

8.4 There is a broad range of engagements to provide a high

or moderate level of assurance. Such engagements may
include:

· Engagements to report on a broad range of subject

matters covering financial and non-financial
information;

· Attest and direct reporting engagements;

· Engagements to report internally and externally; and

· Engagements in the private and public sector.

8.5 The subject matter of an assurance engagement may

take many forms, such as the following:

· Data (for example, historical or prospective

financial information, statistical information,
performance indicators);

· Systems and processes (for example, internal controls);

· Behavior (for example, corporate governance,

compliance with regulation, human resource
practices).

8.6 Not all engagements performed by professional

accountants are assurance engagements. Other
engagements frequently performed by professional
accountants that are not assurance engagements include:

· Agreed-upon procedures;

· Compilation of financial or other information;

· Preparation of tax returns when no conclusion is

expressed, and tax consulting;

· Management consulting; and

· Other advisory services.

8.7 This section of the Code provides a framework, built on
principles, for identifying, evaluating and responding to
threats to independence. The framework establishes
principles that members of assurance teams, firms and
network firms should use to identify threats to
independence, evaluate the significance of those threats,
and, if the threats are other than clearly insignificant,
identify and apply safeguards to eliminate the threats or
reduce them to an acceptable level. Judgment is needed
to determine which safeguards are to be applied. Some
safeguards may eliminate the threat while others may
reduce the threat to an acceptable level. This section
requires members of assurance teams, firms and network
firms to apply the principles to the particular
circumstances under consideration. The examples
presented are intended to illustrate the application of the
principles in this section and are not intended to be, nor
should they be interpreted as, an exhaustive list of all
circumstances that may create threats to independence.
Consequently, it is not sufficient for a member of an
assurance team, a firm or a network firm merely to
comply with the examples presented, rather, they should
apply the principles in this section to the particular
circumstances they face.

A Conceptual Approach to Independence

8.8 Independence requires:

(a) Independence of mind:

The state of mind that permits the provision of an

opinion without being affected by influences that
compromise professional judgment, allowing an
individual to act with integrity, and exercise
objectivity and professional skepticism.

(b) Independence in appearance:

The avoidance of facts and circumstances that are

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

8.9 The use of the word “independence” on its own may

create misunderstandings. Standing alone, the word may
lead observers to suppose that a person exercising
 professional judgment ought to be free from all economic,
financial and other relationships. This is impossible, as
every member of society has relationships with others.
Therefore, the significance of economic, financial and
other relationships should also be evaluated in the light of
what a reasonable and informed third party having
knowledge of all relevant information would reasonably
conclude to be unacceptable.

8.10 Many different circumstances, or combination of

circumstances, may be relevant and accordingly, it is
impossible to define every situation that creates threats
to independence and specify the appropriate mitigating
action that should be taken. In addition, the nature of
assurance engagements may differ and consequently
different threats may exist, requiring the application of
different safeguards. A conceptual framework that
requires firms and members of assurance teams to
identify, evaluate and address threats to independence,
rather than merely comply with a set of specific rules
which may be arbitrary, is, therefore, in the public
interest.

8.11 This section is based on such a conceptual approach, one

that takes into account threats to independence,
accepted safeguards and the public interest. Under this
approach, firms and members of 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
safeguards. In addition to identifying and evaluating
relationships between the firm, network firms, members
of the assurance team and the assurance client,
consideration should be given to whether relationships
between individuals outside of the assurance team and
the assurance client create threats to independence.

8.12 This section provides a framework of principles that

members of assurance teams, firms and network firms
should use to identify threats to independence, evaluate
the significance of those threats, and, if the threats are
other than clearly insignificant, identify and apply
safeguards to eliminate the threats or reduce them to an
acceptable level, such that independence of mind and
independence in appearance are not compromised.

8.13 The principles in this section apply to all assurance

engagements. The nature of the threats to independence
and the applicable safeguards necessary to eliminate the
 threats or reduce them to an acceptable level differ
depending on the characteristics of the individual
engagement; whether the assurance engagement is an
audit engagement or another type of engagement; and in
the case of an assurance engagement that is not an audit
engagement, the purpose, subject matter and intended
users of the report. A firm should, therefore, evaluate the
relevant circumstances, the nature or the assurance
engagement and the threats to independence in deciding
whether it is appropriate to accept or continue an
engagement, as well as the nature of the safeguards
required and whether a particular individual should be a
member of the assurance team.

8.14 Audit engagements provide assurance to a wide range of

potential users; consequently, in addition to
independence of mind, independence in appearance is of
particular significance. Accordingly, for audit clients *, the
members of the assurance team, the firm and network
firms are required to be independent of the audit client.
Similar considerations in the case of assurance
engagements provided to non-audit assurance clients
require the members of the assurance team and the firm
to be independent of the non-audit assurance client. In
the case of these engagements, consideration should be
given to any threats that the firm has reason to believe
may be created by network firm interests and
relationships.

8.15 In the case of an assurance report to a non-audit

assurance client expressly restricted for use by identified
users, the users of the report are considered to be
knowledgeable as to the purpose, subject matter and
limitations of the report through their participation in
establishing the nature and the scope of the firm’s
instructions to deliver the services, including the criteria
by which the subject matter are to be evaluated. This
knowledge and enhanced ability of the firm to
communicate about safeguards with all users of the
report increase the effectiveness of safeguards to
independence in appearance. These circumstances may
be taken into account by the firm in evaluating the
threats to independence and considering the applicable
safeguards necessary to eliminate the threats or reduce
them to an acceptable level. At a minimum, it will be
necessary to apply the provisions of this section in
evaluating the independence of members of the
assurance team and their immediate and close family.
Further, if the firm had a material financial interest,
 whether direct or indirect, in the assurance client, the
self-interest threat created would be so significant no
safeguard could reduce the threat to an acceptable level.
Limited consideration of any threats created by network
firm interests and relationships may be sufficient.

8.16 Accordingly:

· For assurance engagements provided to an audit

client, the members of the assurance team, the firm
and network firms are required to be independent of
the client;

· For assurance engagements provided to clients that

are not audit clients, when the report is not expressly
restricted for use by identified users, the members of
the assurance team and the firm are required to be
independent of the client; and

· For assurance engagements provided to clients

that are not audit clients, when the assurance report is
expressly restricted for use by identified users, the
members of the assurance team are required to be
independent of the client. In addition, the firm should
not have a material direct or indirect financial interest *
in the client.

These independence requirements for assurance

engagements are illustrated as follows:

Type of Assurance
Engagement

Client
Aud Non-audit-not Non-audit
it
restricted use restricted use

Assurance team, firm and

Audit client network firms

Non-audit Assurance team

 Assurance team and firm have no
Assurance material
and firm financial
Client
interest

8.17 The threats and safeguards identified in this section are

generally discussed in the context of interests or
relationships between the firm, network firms, a member
of the assurance team and the assurance client. In the
case of a listed audit client, the firm and any network
firms are required to consider the interests and
relationships that involve that client's related entities.
Ideally those entities and the interests and relationships
should be identified in advance. For all other assurance
clients, when the assurance team has reason to believe
that a related entity* of such an assurance client is
relevant to the evaluation of the firm's independence of
the client, the assurance team should consider that
related entity when evaluating independence and
applying appropriate safeguards.

8.18 The evaluation of threats to independence and

subsequent action should be supported by evidence
obtained before accepting the engagement and while it is
being performed. The obligation to make such an
evaluation and take action arises when a firm, a network
firm or a member of the assurance team knows, or could
reasonably be expected to know, of circumstances or
relationships that might compromise independence. There
may be occasions when the 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.

8.19 Throughout this section, reference is made to significant

and clearly insignificant threats in the evaluation of
independence. In considering the significance of any
particular matter, qualitative as well as quantitative
factors should be taken into account. A matter should be
considered clearly insignificant only if it is deemed to be
both trivial and inconsequential.
Objective and Structure of this Section

8.20 The objective of this section is to assist firms and

members of assurance teams in:

(a) Identifying threats to independence;

(b) Evaluating whether these threats are clearly insignificant;

(c) In cases when the threats are not clearly

insignificant, identifying and applying appropriate
safeguards to eliminate or reduce the threats to an
acceptable level.

In situations when no safeguards are available to reduce

the threat to an acceptable level, the only possible
actions are to eliminate the activities or interest creating
the threat, or to refuse to accept or continue the
assurance engagement.

8.21 This section outlines the threats to independence. It then

analyzes safeguards capable of eliminating these threats
or reducing them to an acceptable level. It concludes with
some examples of how this conceptual approach to
independence is to be applied to specific circumstances
and relationships. Professional judgment is used to
determine the appropriate safeguards to eliminate threats
to independence or to reduce them to an acceptable
level. In certain examples, the threats to independence
are so significant the only possible actions are to
eliminate the activities or interest creating the threat, or
to refuse to accept or continue the assurance
engagement. In other examples, the threat can be
eliminated or reduced to an acceptable level by the
application of safeguards. The examples are not intended
to be all-inclusive.

8.22 When threats to independence that are not clearly

insignificant are identified, and the firm decides to accept
or continue the assurance engagement, the decision
should be documented. The documentation should
include a description of the threats identified and the
safeguards applied to eliminate or reduce the threats to
an acceptable level.

8.23 The evaluation of the significance of any threats to

independence and the safeguards necessary to reduce
any threats to an acceptable level, takes into account the
public interest. Certain entities may be of significant
public interest because, as a result of their business, their
 size or their corporate status, they have a wide range of
stakeholders. Examples of such entities might include
listed companies, credit institutions, insurance
companies, and pension funds. Because of the strong
public interest in the financial statements of listed
entities, certain paragraphs in this section deal with
additional matters that are relevant to the audit of listed
entities. Consideration should be given to the application
of the principles set out in this section in relation to the
audit of listed entities to other audit clients that may be of
significant public interest.

National Perspectives

8.24 This section establishes a conceptual framework for

independence requirements for assurance engagements.
Accordingly, no member body or firm is allowed to apply
less stringent standards than those stated in this section.
This Code does not apply less stringent standards than
those stated in the IFAC Code.

8.25 Certain examples in this section indicate how the

principles are to be applied to listed entity audit
engagements. Where there is no differentiation between
listed entity audit engagements and other audit
engagements, the examples that relate to listed entity
audit engagements should be considered to apply to all
audit engagements.

8.26 When a firm conducts an assurance engagement in

accordance with the Philippine Standards on Assurance
Engagements, or with specific standards for assurance
engagements issued by the Philippine Auditing Standards
and Practices Council such as an audit or review of
financial statements in accordance with Philippine
Standards on Auditing, the members of the assurance
team and the firm should comply with this section unless
they are prohibited from complying with certain parts of
this section by law or regulation. In such cases, the
members of the assurance team and the firm should
comply with all other parts of this section.

8.27 Firms, network firms and members of assurance teams

should be aware of those differences between/among the
definitions of relationships under applicable existing laws,
rules and regulations and the definitions provided herein
and comply with the more stringent requirements.
Threats to Independence

8.28 Independence is potentially affected by self-interest, self-

review, advocacy, familiarity and intimidation threats.

8.29 “Self-Interest Threat” occurs when a firm or a member of

the assurance team could benefit from a financial interest
in, or other self-interest conflict with, an assurance client.

Examples of circumstances that may create this threat

include, but are not limited to:

(a) A direct financial interest or material indirect

financial interest in an assurance client;

(b) A loan or guarantee to or from an assurance client

or any of its directors or officers;

(c) Undue dependence on total fees from an assurance

client;

(d) Concern about the possibility of losing the

engagement;
(e) Having a close business relationship with an
assurance client;

(f) Potential employment with an assurance client; and

(g) Contingent fees relating to assurance engagements.

8.30 “Self-Review Threats” 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 the 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 of circumstances that may create this threat

include, but are not limited to:

(a) A member of the assurance team being, or having

recently been, a director or officer of the assurance
client;

(b) 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;

(c) Performing services for an assurance client that

directly affect the subject matter of the assurance
engagement; and

(d) Preparation of original data used to generate

financial statements or preparation of other records
that are the subject matter of the assurance
engagement.

8.31 “Advocacy Threat” occurs when a firm, or a member of

the assurance team, promotes, or may be 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 a
member of the assurance team were to subordinate their
judgment to that of the client.

Examples of circumstances that may create this threat

include, but are not limited to:

(a) Dealing in, or being a promoter of, share or other

securities in an assurance client; and

(b) Acting as an advocate on behalf of an assurance

client in litigation or in resolving disputes with third
parties.

8.32 “Familiarity Threat” occurs when, by virtue of a close

relationship with an assurance client, its directors,
officers or employees, a firm or a member of the
assurance team becomes too sympathetic to the client’s
interests.

Examples of circumstances that may create this threat

include, but are not limited to:

(a) 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;

(b) A member of the assurance team 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;
 (c) 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;

(d) Long association of a senior member of the

assurance team with the assurance client; and

(e) Acceptance of gifts or hospitality, unless the value

is clearly insignificant, from the assurance client, its
directors, officers or employees.

8.33 “Intimidation Threat” occurs when a member of the

assurance team may be deterred from acting objectively
and exercising professional skepticism by threats, actual
or perceived, from the directors, officers or employees of
an assurance client.

Examples of circumstances that may create this threat

include, but are not limited to:

(a) Threat of replacement over a disagreement with

the application of an accounting principle; and

(b) Pressure to reduce inappropriately the extent of

work performed in order to reduce fees.

Safeguards

8.34 The firm and members of the assurance team have a

responsibility to remain independent by taking into
account the context in which they practice, the threats to
independence and the safeguards available to eliminate
the threats or reduce them to an acceptable level.

8.35 When threats are identified, other than those that are
clearly insignificant, appropriate safeguards should be
identified and applied to eliminate the threats or reduce
them to an acceptable level. This decision should be
documented. The nature of the safeguards to be applied
will vary depending upon the circumstances.
Consideration should always be given to what a
reasonable and informed third party having knowledge of
all relevant information, including safeguards applied,
would reasonable conclude to be unacceptable. The
consideration will be affected by matters such as the
significance of the threat, the nature of the assurance
 engagement, the intended users of the assurance report
and the structure of the firm.

8.36 Safeguards fall into three broad categories:

(a) Safeguards created by the profession, legislation or

regulation;

(b) Safeguards within the assurance client; and

(c) Safeguards within the firm’s own systems and procedures.

The firm and the members of the assurance team should

select appropriate safeguards to eliminate or reduce
threats to independence, other than those that are clearly
insignificant, to an acceptable level.

8.37 Safeguards created by the profession, legislation or

regulation, include the following:

(a) Educational, training and experience requirements

for entry into the profession;
(b) Continuing education requirements;
(c) Professional standards and monitoring and
disciplinary processes;

(d) External review of a firm’s quality control system; and

(e) Legislation governing the independence requirements

of the firm.

8.38 Safeguards within the assurance client, include the following:

(a) When the assurance client’s management appoints

the firm, persons other than management ratify or
approve the appointment;

(b) The assurance client has competent employees to

make managerial decisions;

(c) Policies and procedures that emphasize the

assurance client’s commitment to fair financial
reporting;

(d) Internal procedures that ensure objective choices in

commissioning non-assurance engagements; and
 (e) A corporate governance structure, such as an audit
committee, that provides appropriate oversight and
communications regarding a firm’s services.

8.39 Audit committees can have an important corporate

governance role when they are independent of client
management and can assist the Board of Directors in
satisfying themselves that a firm is independent in
carrying out its audit role.
There should be regular communications between the
firm and the audit committee (or other governance body if
there is no audit committee) of listed entities regarding
relationships and other matters that might, in the firm’s
opinion, reasonably be thought to bear on independence.

8.40 Firms should establish policies and procedures relating to

independence communications with audit committees, or
others charged with governance. In the case of the audit
of listed entities, the firm should communicate orally and
in writing at least annually, all relationships and other
matters between the firm, network firms and the audit
client that in the firm’s professional judgment may
reasonably be thought to bear on independence. Matters
to be communicated will vary in each circumstance and
should be decided by the firm, but should generally
address the relevant matters set out in this section.

8.41 Safeguards within the firm’s own systems and procedures

may include firm-wide safeguards such as the following:

(a) Firm leadership that stresses the importance of

independence and the expectation that members
of assurance teams will act in the public interest;

(b) Policies and procedures to implement and monitor

quality control of assurance engagements;

(c) Documented independence policies regarding the

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;

(d) Internal policies and procedures to monitor

compliance with firm policies and procedures as
they relate to independence;

(e) Policies and procedures that will enable the

identification of interests or relationships between
 the firm or members of the assurance team and
assurance clients;

(f) Policies and procedures to monitor and, if

necessary, manage the reliance on revenue
received from a single assurance client;

(g) Using different partners and teams with separate

reporting lines for the provision of non-assurance
services to an assurance client; Policies and
procedures to prohibit individuals who are not
members of the assurance team from influencing
the outcome of the assurance engagement;

(h) 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;

(i) Designating a member of senior management as

responsible for overseeing the adequate
functioning of the safeguarding system;

(j) Means of advising partners and professional staff

of those assurance clients and related entities from
which they must be independent;

(k) A disciplinary mechanism to promote compliance

with policies and procedures; and

(l) 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.

8.42 Safeguards within the firm’s own systems and procedures

may include engagement specific safeguards such as the
following:

(a) Involving an additional professional accountant to

review the work done or otherwise advise as
necessary. This individual could be someone from
outside the firm or network firm, or someone within
the firm or network firm who was not otherwise
associated with the assurance team;

(b) Consulting a third party, such as a committee of

independent directors, a professional regulatory
body or another professional accountant;
 (c) Rotation of senior personnel;

(d) Discussing independence issues with the audit

committee or others charged with governance;

(e) Disclosing to the audit committee, or others

charged with governance, the nature of services
provided and extent of fees charged;

(f) Policies and procedures to ensure members of the

assurance team do not make, or assume
responsibility for, management decisions for the
assurance client; Involving another firm to perform
or re-perform part of the assurance engagement;

(g) Involving another firm to re-perform the non-

assurance service to the extent necessary to
enable it to take responsibility for that service; and

(h) Removing an individual from the assurance team,

when that individual’s financial interest or
relationships create a threat to independence.

8.43 When the safeguards available, such as those described

above, are insufficient to eliminate the threats to
independence or to reduce them to an acceptable level,
or when a firm chooses not to eliminate the activities or
interest creating the threat, the only course of action
available will be the refusal to perform, or withdrawal
from, the assurance engagement.

Engagement Period

8.44 The members of the assurance team and the firm should
be independent of the assurance client during the period
of the assurance engagement. The period of the
engagement starts when the assurance team begins to
perform assurance services and ends when the assurance
report is issued, except when the assurance engagement
is of a recurring nature. If the assurance engagement is
expected to recur, 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 later.

8.45 In the case of an audit engagement, the engagement

period includes the period covered by the financial
statements reported on by the firm. When an entity
becomes an audit client during or after the period
 covered by the financial statements that the firm will
report on, the firm should consider whether any threats to
independence may be created by:

 Financial or business relationships with the audit

client during or after the period covered by the
financial statements, but prior to the acceptance of
the audit engagement; or

 Previous services provided to the audit client.

Similarly, in the case of an assurance engagement that is

not an audit engagement, the firm should consider
whether any financial or business relationships or
previous services may create threats to independence.

8.46 If non-assurance services were provided to the audit

client during or after the period covered by the financial
statements but before the commencement of professional
services in connection with the audit and those services would
be prohibited during the period of the audit engagement,
consideration should be given to the threats to independence, if
any, arising from those services. If the threat is other than
clearly insignificant, safeguards should be considered and
applied as necessary to reduce the threat to an acceptable level.
Such safeguards might include:

 Discussing independence issues related to the

provision of the non-assurance services with those
charged with governance of the client, such as the
audit committee;
 Obtaining the audit client’s acknowledgement of
responsibility for the results of the non-assurance
services;
 Precluding personnel who provided the non-
assurance services from participating in the audit
engagement; and
 Engaging another firm to review the results of the
non-assurance services or having another firm re-
perform the non-assurance services to the extent
necessary to enable it to take responsibility for
those services.

8.47 Non-assurance services provided to a non-listed audit

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

 The previous non-assurance services were

permissible under this section for non-listed audit
clients;
  The services will be terminated within a reasonable
period of time of the client becoming a listed entity,
if they are impermissible under this section for
listed audit clients; and

 The firm has implemented appropriate safeguards

to eliminate any threats to independence arising
from the previous services or reduce them to an
acceptable level.

SECTION 9

Professional Competence and Responsibilities Regarding

the Use of Non-Accountants

9.1 Professional accountants in public practice 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 a professional
accountant does not have the competence to perform a
specific part of the professional service, technical advice
may be sought from experts such as other professional
accountants, lawyers, actuaries, engineers, geologists,
valuers.

9.2 In such situations, although the professional accountant is

relying on the technical competence of the expert, the
knowledge of the ethical requirements cannot be
automatically assumed. Since the ultimate responsibility
for the professional service rests with the professional
accountant, the professional accountant should see that
the requirements of ethical behavior are followed.

9.3 When using the services of experts who are not

professional accountants, the professional accountant
must take steps to see that such experts are aware of
ethical requirements. Primary attention should be paid to
the fundamental principles in paragraph 16 of the
Introduction to this Code. These principles would extend
to any assignment in which such experts would
participate.

9.4 The degree of supervision and the amount of guidance

that will be needed will depend upon the individuals
 involved and the nature of the engagement. Examples of
such guidance and supervision might include:

· Asking individuals to read the appropriate ethical codes;

· Requiring written confirmation of understanding of

the ethical requirements; and

· Providing consultation when potential conflicts arise.

9.5 The professional accountant should also be alert to

specific independence requirements or other risks unique
to the engagement. Such situations will require special
attention and guidance/supervision to see that ethical
requirements are met. For example, Section 8 of this
Code requires all professionals participating in the
assurance engagement to be independent of the
assurance client.
9.6 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

10.1 Professional accountants in public practice who undertake

professional services for a client, assume the
responsibility to perform such services with integrity and
objectivity and in accordance with the appropriate
technical standards. That responsibility is discharged by
applying the professional skill and knowledge which
professional accountants in public practice have acquired
through training and experience. For the services
rendered, the professional accountant in public practice *
is entitled to remuneration.

Professional Fees

10.2 Professional fees should be a fair reflection of the value of

the professional services performed for the client, taking
into account:

(a) The skill and knowledge required for the type of

professional services involved;

(b) The level of training and experience of the persons

necessarily engaged in performing the professional
services;
 (c) The time necessarily occupied by each person
engaged in performing the professional services;
and

(d) The degree of responsibility that performing those

services entails.

10.3 Professional fees should normally be computed on the

basis of appropriate rates per hour or per day for the time
of each person engaged in performing professional
services. These rates should be based on the fundamental
premise that the organization and conduct of the
professional accountant in public practice and the
services provided to clients are well planned, controlled
and managed. They should take into account the factors
set out in paragraph 10.2 and are influenced by the legal,
social and economic conditions in the Philippines. It is for
each professional accountant in public practice to
determine the appropriate rates.

10.4 A professional accountant in public practice 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 the representation that such fees will be
substantially increased and the prospective client is not
advised of that likelihood.

10.5 When performing professional services for a client, it may

be necessary or expedient to charge a pre-arranged fee,
in which event the professional accountant in public
practice should estimate a fee taking into account the
matters referred to in paragraphs 10.2 through 10.4.

10.6 It is not improper for a professional accountant in public

practice to charge a client a lower fee than has previously
been charged for similar services.

Commentary

The fact that a professional accountant in public practice

secures work by quoting a fee lower than another is not
improper. However, professional accountants in public
practice who obtain work at fees significantly lower than
those charged by an existing accountant *, or quoted by
others, should be aware that there is a risk of a
perception that the quality of work could be impaired.
 Accordingly, when deciding on a fee to be quoted to a
client for the performance of professional services, a
professional accountant should be satisfied that, as a
result of the fee quoted:

· The quality of work will not be impaired and that

due care will be applied to comply with all
professional standards and quality control
procedures in the performance of those services,
and

· The 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.

10.7 As stated:

An assurance engagement should not be performed for a

fee that is contingent on the result of the assurance work
or on items that are the subject matter of the assurance
engagement.

Commentary

Fees should not be regarded as being contingent if fixed

by a court or other public authority. Fees charged on a
percentage or similar basis, except when authorized by
statute or approved by a member body as generally
accepted practice for certain professional services, should
be regarded as contingent fees.

10.8 The foregoing paragraphs relate to fees as distinct from

reimbursement of expenses. Out-of-pocket expenses, in
particular traveling expenses, attributable directly to the
professional services performed for a particular client
would normally be charged to that client in addition to the
professional fees.

10.9 It is in the best interests of both the client and the

professional accountant in public practice that the basis
on which fees are computed and any billing arrangements
are clearly defined, preferably in writing, before the
commencement of the engagement to help in avoiding
misunderstandings with respect to fees.

Commissions

10.10 A professional accountant in public practice should not

pay a commission to obtain a client nor should a
commission be accepted for referral of a client to a third
 party. A professional accountant in public practice should
not accept a commission for the referral of the products
or services of others.

10.11 Payment and receipt of referral fees between professional

accountants in public practice when no services are
performed by the referring accountant are regarded as
commissions for the purpose of paragraph 10.10.

10.12 A professional accountant in public practice may enter

into an arrangement for the purchase of the whole or part
of an accounting practice requiring payments to
individuals formerly engaged in the practice or payments
to their heirs or estates. Such payments are not regarded
as commissions.

SECTION 11

Activities Incompatible with the Practice of Public Accountancy

11.1 A professional accountant in public practice should not

concurrently 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.

11.2 The rendering of two or more types of professional

services concurrently does not by itself impair integrity,
objectivity or independence.

11.3 The simultaneous engagement in another business,

occupation or activity unrelated to professional services
which has the effect of not allowing the professional
accountant in public practice properly to conduct a
professional practice in accordance with the fundamental
ethical principles of the accountancy profession should be
regarded as inconsistent with the practice of public
accountancy.

SECTION 12

Clients’ Monies

12.1 The professional accountants in public practice should not

hold client’s; monies if there is reason to believe that they
were obtained from, or are to be used for, illegal
activities.
12.2 A professional accountant in public practice entrusted
with monies belonging to others should:

(a) Keep such monies separately from personal or firm

monies;

(b) Use such monies only for the purpose for which
they are intended; and

(c) At all times, be ready to account for those monies

to any persons entitled to such accounting.

12.3 A professional accountant in public practice should

maintain one or more bank accounts for clients’ monies.
Such bank accounts may include a general client account
into which the monies of a number of clients may be paid.

12.4 Clients’ monies received by a professional accountant in

public practice should be deposited without delay to the
credit of a client account, or - if in the form of documents
of title to money and documents of title which can be
converted into money - be safeguarded against
unauthorized use.

12.5 Monies may only be drawn from the client account on the
instructions of the client.

12.6 Fees due from a client may be drawn from client’s monies
provided the client, after being notified of the amount of
such fees, has agreed to such withdrawal.

12.7 Payments from a client account shall not exceed the

balance standing to the credit of the client.

12.8 When it seems likely that the client’s monies remain on

client account for a significant period of time, the
professional accountant in public practice should, with the
concurrence of the client, place such monies in an interest
bearing account within a reasonable time.

12.9 All interest earned on clients’ monies should be credited to

the client account.

12.10 Professional accountants in public practice should keep

such books of account as will enable them, at any time, to
establish clearly their dealings with clients’ monies in
general and the monies of each individual client in
particular. A statement of account should be provided to
the client at least once a year.
SECTION 13

Relations with Other Professional Accountants in Public Practice

Accepting New Assignments

13.1 The extension of the operations of a business undertaking

frequently results in the formation of branches or
subsidiary companies at locations where an existing
accountant* does not practice. In these circumstances, the
client or the existing accountant, in consultation with the
client, may request a receiving accountant practicing at
those locations to perform such professional services as
necessary to complete the assignment.

13.2 Referral of business may also arise in the area of special

services or special tasks. The scope of the services
offered by professional accountants in public practice
continues to expand and the depth of knowledge which is
needed to serve the public often calls for special skills.
Since it is impracticable for any one professional
accountant in public practice to acquire special expertise
or experience in all fields of accountancy, some
professional accountants in public practice have decided
that it is neither appropriate nor desirable to develop
within their firms the complete range of special skills
which may be required.

13.3 Professional accountants in public practice should only

undertake such services which they can expect to
complete with professional competence. It is essential
therefore for the profession in general and in the interests
of their clients that professional accountants in public
practice be encouraged to obtain advice when
appropriate from those who are competent to provide it.

13.4 An existing accountant without a particular skill may,

however, be reluctant to refer a client to another
professional accountant in public practice who may
possess that skill, because of the fear of losing existing
business to the other professional accountant in public
practice. As a result, clients may be deprived of the
benefit of advice which they are entitled to receive.

13.5 The wishes of the client should be paramount in the

choice of professional advisers, whether or not special
skills are involved. Accordingly, a professional accountant
in public practice should not attempt to restrict in any
way the client’s freedom of choice in obtaining special
 advice, and when appropriate, should encourage client to
do so.

13.6 The services or advice of a professional accountant in

public practice having special skills may be sought in one
or other of the following ways:

(a) By the client:

(i) After prior discussion and consultation with

the existing accountant;

(ii) On the specific request or recommendation

of the existing accountant; and

(iii) Without reference to the existing accountant; or

(b) By the existing accountant with due observance of

the duty of confidentiality.

13.7 When a professional accountant in public practice is asked

to provide services or advice, inquiries should be made as
to whether the prospective client has an existing
accountant. In cases where there is an existing
accountant who will continue to provide professional
services, the procedures set out in paragraphs 13.8 -
13.14 should be observed. If the appointment will result in
another professional accountant in public practice being
superseded, the procedures set out in paragraphs 13.15 -
13.26 should be followed.

13.8 The receiving accountant should limit the services

provided to the specific assignment received by referral
from the existing accountant or the client unless
otherwise requested by the client. The receiving
accountant also has the duty to take reasonable steps to
support the existing accountant’s current relationship
with the client and should not express any criticism of the
professional services of the existing accountant without
giving the latter an opportunity to provide all relevant
information.

13.9 A receiving accountant who is asked by the client to

undertake an assignment of a type which is clearly
distinct from that being carried out by the existing
accountant or from that initially received by referral from
the existing accountant or from the client, should regard
this as a separate request to provide services or advice.
Before accepting any appointments of this nature, the
 receiving accountant should advice the client of the
professional obligation to communicate with the existing
accountant and should immediately do so preferably in
writing, advising of the approach made by the client and
the general nature of the request as well as seeking all
relevant information, if any, necessary to perform the
assignment.

13.10 Circumstances sometimes arise when the client insists

that the existing accountant should not be informed. In
this case, the receiving accountant should decide whether
the client’s reasons are valid. In the absence of special
circumstances, a mere disinclination by the client for
communication with the existing accountant would not be
a satisfactory reason.

13.11 The receiving accountant should:

(a) Comply with the instructions received from the

existing accountant or the client to the extent that
they do not conflict with relevant legal or other
requirements; and

(b) Ensure, insofar as it is practicable to do so, that the

existing accountant is kept informed of the general
nature of the professional services being
performed.

13.12 When there are two or more other professional

accountants in public practice performing professional
services for the client concerned, it may be appropriate to
notify only the relevant professional accountant in public
practice depending on the specific services being
performed.

13.13 When appropriate, the existing accountant, in addition to

issuing instructions concerning referred business, should
maintain contact with the receiving accountants and
cooperate with them in all reasonable requests for
assistance.

13.14 When the opinion of a professional accountant, other than

the existing accountant, is sought on the application of
accounting, auditing, reporting or other standards or
principles to specific circumstances or transactions, the
professional accountant should be alert to the possibility
of the opinion creating undue pressure on the judgment
and objectivity of the accountant. An opinion given
without full and proper facts can cause difficulty to the
receiving accountant if the opinion is challenged or the
 receiving accountant is subsequently appointed by the
company. Accordingly, the professional accountant should
seek to minimize the risk of giving inappropriate guidance
by ensuring that he or she has access to all relevant
information. When there is a request for an opinion in the
above circumstances, there is a requirement for
communication with the existing accountant. It is
important that the existing accountant, with the
permission of the client, provide the receiving accountant
with all requested relevant information about the client.
With the permission of the client, the receiving
accountant should also provide a copy of the final report
to the existing accountant. If the client does not agree to
these communications, then the engagement should
ordinarily not be performed.

Superseding Another Professional Accountant in Public Practice

13.15 The proprietors of a business have an indisputable right to

choose their professional advisers and to change to others
should they so desire. While it is essential that the
legitimate interests of the proprietors are protected, it is
also important that a professional accountant in public
practice who is asked to replace another professional
accountant in public practice has the opportunity to
ascertain if there are any professional reasons why the
appointment should not be accepted. This cannot
effectively be done without direct communication with the
existing accountant. In the absence of a specific request,
the existing accountant should not volunteer information
about the client's affairs.

13.16 Communication enables a professional accountant in

public practice to ascertain whether the circumstances in
which a change in appointment is proposed are such that
the appointment can properly be accepted and also
whether there is a wish to undertake the engagement. In
addition, such communication helps to preserve the
harmonious relationships which should exist between all
professional accountants in public practice on whom
clients rely for professional advice and assistance.

13.17 The extent to which an existing accountant can discuss

the affairs of the client with the proposed professional
accountant in public practice depends on:

(a) Whether the client’s permission to do so has been

obtained; and/or

(b) The legal or ethical requirements relating to such

 disclosure.

13.18 The proposed professional accountant in public practice

should treat in the strictest confidence, and give due
weight to, any information provided by the existing
accountant.

13.19 The information provided by the existing accountant may

indicate, for example, that the ostensible reasons given
by the client for the change are not in accordance with
the facts. It may disclose that the proposal to make a
change in professional accountants in public practice was
made because the existing accountants stood their
ground and properly carried out the duties as professional
accountants in public practice despite opposition or
evasion on an occasion on which important differences of
principles or practice have arisen with the client.

13.20 Communication between the parties therefore serves:

(a) To protect a professional accountant in public

practice from accepting an appointment in
circumstances where all the pertinent facts are not
known.
(b) To protect the minority proprietors of a business
who may not be fully informed of the
circumstances in which the change is proposed.

(c) To protect the interests of the existing accountant

when the proposed change arises from, or is an
attempt to interfere with, the conscientious
exercise of the existing accountant's duty to act as
an independent professional.

13.21 Before accepting an appointment involving recurring

professional services hitherto carried out by another
professional accountant in public practice, the proposed
professional accountant in public practice should:

(a) Ascertain if the prospective client has advised the

existing accountant of the proposed change and
has given permission, preferably in writing, to
discuss the client’s affairs fully and freely with the
proposed professional accountant in public
practice.

(b) When satisfied with the reply received from

prospective client, request permission to
communicate with the existing accountant. If such
permission is refused or the permission referred to
 in (a) above is not given, the proposed professional
accountant in public practice should, in the
absence of exceptional circumstances of which
there is full knowledge, and unless there is
satisfaction as to necessary facts by other means,
decline the appointment.

(c) On receipt of permission, ask the existing

accountant, preferably in writing:

(i) To provide information on any professional

reasons which should be known before
deciding whether or not to accept the
appointment and, if there are such matters;
and

(ii) To provide all the necessary details to be

able to come to a decision.

13.22 The existing accountant, on receipt of the communication

referred to in paragraph 13.21 (c) should forthwith:

(a) Reply, preferably in writing, advising whether there

are any professional reasons why the proposed
professional accountant in public practice should
not accept the appointment.

(b) If there are any such reasons or other matters

which should be disclosed, ensure that the client
has given permission to give details of this
information to the proposed professional
accountant in public practice. If permission is not
granted, the existing accountant should report that
fact to the proposed professional accountant in
public practice.

(c) On receipt of permission from the client, disclose all

information needed by the proposed professional
accountant in public practice to be able to decide
whether or not to accept the appointment, and
discuss freely with the proposed professional
accountant in public practice all matters relevant to
the appointment of which the latter should be
aware.

13.23 If the proposed professional accountant in public practice

does not receive, within a reasonable time, a reply from
the existing accountant and there is no reason to believe
that there are any exceptional circumstances surrounding
the proposed change, the proposed professional
 accountant in public practice should endeavor to
communicate with the existing accountant by some other
means. If unable to obtain a satisfactory outcome in this
way, the proposed professional accountant in public
practice should send a further letter, stating that there is
an assumption that there is no professional reason why
the appointment should not be accepted and that there is
an intention to do so.

13.24 The fact that there may be fees owing to the existing
accountant is not a professional reason why another
professional accountant in public practice should not
accept the appointment.

13.25 The existing accountant should promptly transfer to the

new professional accountant in public practice all books
and papers of the client which are or may be held after
the change in appointment has been effected and should
advise the client accordingly, unless the professional
accountant in public practice has a legal right to withhold
them.

13.26 Certain organizations, either because of legislative

requirements or otherwise, call for submissions or
tenders, e.g., competitive bids, in relation to professional
services offered by accountants in public practice. In reply
to a public advertisement or an unsolicited request to
make a submission or submit a tender, a professional
accountant in public practice should, if the appointment
may result in the replacement of another professional
accountant in public practice, state in the submission or
tender that before acceptance, the opportunity to contact
the other professional accountant in public practice is
required so that inquiries may be made as to whether
there are any professional reasons why the appointment
should not be accepted. If the submission or tender is
successful, the existing accountants should then be
contacted.

SECTION 14

Advertising and Solicitation

14.1 Advertising and solicitation by individual professional

accountants in public practice are not permitted in the
Philippines.

14.2 A professional accountant in public practice in the

Philippines, where advertising is prohibited should not
 advertise in a newspaper or magazine published in a
country where advertising is permitted.

14.3 In situations where professional accountants in public

practice in their international cross border activities
violate the provisions of paragraph 14.4, contact should
take place between the member body in the country in
which the violation takes place and the member body of
the home country of the professional accountant in public
practice to ensure that the member body in the home
country is made aware of such violation.

14.4 It is clearly desirable that the public should be aware of

the range of services available from a professional
accountant. Accordingly there is no objection to a
member body communicating such information to the
public on an institutional basis, i.e., in the name of the
member body.