The Code of

Professional Ethics
Par. 6 - A profession is distinguished by certain
characteristics including:
 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).
Par. 7 - 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.
Par 8 - Against this background it is beholden on
member bodies to lay down ethical requirements for
their members to ensure the highest quality of
performance and to maintain public confidence in the
profession.
The Public Interest
Par. 9. - 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.
Objectives
Par. 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
Par 15. In order to achieve the objectives of the accountancy
profession, professional accountants have to observe a number
of prerequisites or fundamental principles.
Par 16. The fundamental principles are:
 Integrity
A professional accountant should be straightforward and honest
in performing professional services. Integrity implies not merely
honesty but fair dealing and truthfulness.
 Objectivity

A professional accountant should be fair and should not allow

prejudice or bias, conflict of interest or influence of others to
override objectivity The Principle of objectivity imposes the
obligation on all professional accountants to be fair, intellectually
honest and free of conflicts of interest.
 ·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. A professional accountant should not
undertake any engagements or accept an employment
which he or she cannot reasonably expect to discharge
with professional competence. Professional competence
may be divided into two separate phases: Attainment of
Competence and Maintenance of Professional
Competence.

Moreover, the professional accountant should apply

knowledge, skills and experience with due professional
care. Due care encompasses the responsibility to perform
professional services in accordance with technical and
professional standards, carefully, thoroughly and on a
timely basis.
 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. Confidentiality is not only a matter of disclosure of
information. Accountants who acquire information in the
course of performing services shall neither use nor appear to
use that information for personal advantage or for the
advantage of a third party. However, confidentiality can be
disclosed under the following situations:
1. If permitted by the client or employer.
2. If required by law such as compliance with a
subpoena issued by court in the course of legal
proceedings.
3. If there is a professional duty or right to disclose
confidential information like if the accountant is sued
by his client or employer.
 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.
Specific guidelines to professional accountants regarding
professional behavior are provided for tax practice, cross
boarder activities and publicity.

Tax Practice
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.
Cross Boarder Activities
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 professional
accountant should apply the stricter of the two
ethical requirements.

Publicity
In the marketing and promotion of themselves and
their work, professional accountants should:
- Not use means which brings the profession into
disrepute;
- Not make exaggerated claims for the services they
are able to offer, the qualifications they possess, or
experience they have gained; and
- Not denigrate the work of other accountants.
 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 promulgated by:
· ASPC;
· ASC;
· Other regulatory bodies (BOA, PRC, SEC)
· Relevant legislation.
Section 18 - Independence
 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.
Conceptual Framework in Understanding
Section 8
(a) Identifying threats to independence;
(b) Evaluating whether these threats are clearly
insignificant; and
(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.
 Threats to Independence
 “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.
 “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.
 “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.
 “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.
 “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.
 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.
 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.
 Safeguards within the assurance client,
include the following:
 When the assurance client’s 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 client’s commitment to fair financial
reporting;
 Internal procedures that ensure objective choices in
commissioning non-assurance engagements; and
 A corporate governance structure, such as an audit
committee, that provides appropriate oversight and
communications regarding a firm’s services.
 Safeguards within the firm’s own systems and
procedures may include firm-wide safeguards
such as the following:
 Firm leadership that stresses the importance of independence
and the expectation that members of assurance teams will act in
the public interest;
 Policies and procedures to implement and monitor quality control
of assurance engagements;
 Documented independence policies regarding 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;
 Internal policies and procedures to monitor compliance with firm
policies and procedures as they relate to independence;
 Policies and procedures that will enable the identification of
interests or relationships between the firm or members of the
assurance team and assurance clients;
 Independence Interpretations and Rulings
 Financial Interest

In evaluating the significance of threat created by a financial interest, it is

important to determine materiality of the financial interest and the type of
financial interest. When evaluating the type of financial interest,
consideration should be given to the fact that financial interests range
from those where the individual has no control over the investment and
those who has control. When control exists, the financial interest should
be considered direct. Conversely, when the individual has no control
over the financial interest, the financial interest should be considered
indirect.

Any direct financial interest in assurance client, whether material or

immaterial, impairs the CPA’s independence. But in the case of an
indirect financial interest, the interest must be material in order to impair
the CPA’s independence.
 Loans and Guarantees
A loan from, or a guarantee thereof by, an
assurance client that is a financial institution will
not impair the CPA’s independence provided the
loan is:
- immaterial to both the firm and assurance client; or
- made under normal lending procedures, terms,
and requirements of the financial institution.
A loan to or from an assurance client that is not a
financial institution or a guarantee of assurance
client’s borrowing will normally impair the CPA’s
independence unless the amount of the loan or
guarantee is immaterial to the firm and assurance
client.
Family and personal relationships
It is impracticable to describe in detail the
significance of threats that family and personal
relationships may create. In evaluation the
significance of threats created by family and
personal relationship, the CPA should consider the
closeness of the relationship and the role of the
family member within the assurance client.

Independence is impaired, when a member of an

assurance team has an immediate family member
who is a director, an officer or an employee of an
assurance client in a position to influence the
subject matter of the assurance engagement.
Past employment with an assurance client

Independence is impaired if, during the period covered

by the assurance report, a member of the assurance
team had served as a director, an officer or an employee
of the assurance client in a position to influence the
subject matter of the assurance engagement. Hence,
CPA’s can not issue an assurance report covering any
period during which the CPA was employed in a
management capacity. To do so would violate the basic
concept that one can not act independently in evaluating
his or her own work.
Serving as an officer or director on the
Board of Assurance Clients

Independence of the CPA is impaired if a partner or

employee of a firm or network firm serves as an
officer or a director or a director on the board of an
assurance client. However, serving as an honorary
member on the board of an assurance client, will not
impair the CPA’s independence provided that the
CPA does not participate in the management or
operations of the assurance client.
Long association with assurance
clients

Using the same senior personnel and/or lead

engagement partner on an assurance engagement
for a long period of time may create familiarity
threat. Nevertheless, this threat can be reduced to
an acceptable level by employing adequate
safeguards such as rotating the personnel and
independent quality reviews. Furthermore, when
auditing financial statements of listed entities, it is
required that lead engagement partners be rotated
at least once every five years.
Provision of accounting and bookkeeping services
to assurance clients

A firm or network firm should not provide accounting and

bookkeeping services for an audit client that is a listed entity.
The provision of such services may impair the CPA’s
independence, or at least give the appearance of impairing
independence.

The provision of accounting and bookkeeping services to audit

clients in emergency or other unusual situations would not impair
the CPA’s independence provided:
- The client accept accepts responsibility for the results of the
work;
- The firm does not assume or make any managerial decisions;
and
- Personnel providing the services are not members of the
assurance team
Provision of taxation services to assurance clients

Provision of taxation services such as tax compliance, planning , provision of taxation

opinion of taxation opinions and assistance in the resolution of tax disputes will not
impair the CPA’s independence.

Provision of legal services to assurance clients

When providing legal services to an assurance client, it is important to make a distinction
between advocacy services and advisory services.

Acting as an advocate of an audit client in the resolution of a dispute or litigation where

the amount involved is material to the financial statements of an audit client will impair
the CPA’s independence. Hence, the firm should not perform this type of service for an
audit client.

On the other hand, legal services to support an audit client in the execution of the
transaction (e.g. legal advice, contract support, legal due diligence and restructuring) will
not impair the CPA’s independence provided adequate safeguards are employed.

In addition, independence is usually impaired when a CPA provides corporate finance

services to an assurance client, Hence, services such as promoting or underwriting the
client’s securities or consummating business transactions in behalf of the client are not
compatible with providing assurance services.
Recruiting Senior Management
The recruitment of a senior management for an assurance client will normally
impair the CPA’s independence specially if the firm makes the ultimate hiring
decisions. On the contrary, the firm could perform consulting services as
reviewing the qualifications of the applications of the applicants and provide
advice on their suitability for the post.

Fees-overdue
The CPA’s independence is impaired if, at the time of issuing the assurance
report, the prior year’s professional fees due from the client remains unpaid.
Hence, the payment of such fees should be required before the report is
issued.
Contingent fees
Contingent fees charged by a firm with respect to an assurance engagement will
impair the CPA’s independence, Thus, a professional accountant shall not
provided professional services under an arrangement whereby no fees will be
charged unless specific finding is attained.

Fees are not to be regarded as contingent if these are

- fixed by a court or other public authority
- determined based on the results judicial or government agency proceedings.

Gifts and hospitality

A professional accountant’s acceptance of more than a token gift from an
assurance client impairs his or her independence.
Actual or threatened litigation
Litigation involving the firm or a member of the assurance team and the
assurance client may create self-interest and intimidation threats. The
relationship between the CPA and the client must be characterized by honesty,
truthfulness and full disclosure. Such a relationship may not exist when
litigation places the CPA and the client’s management in an adversarial
position. Hence, CPA in litigation with a client must evaluate the situation to
determine whether the significance of litigation affects the client’s confidence in
the auditor’s independence.
Professional Fees
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
involve;

(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.

Commissions
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. The main
purpose of this is to avoid situations where a client has to pay fees for which no
commensurate professional service was received.

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.
Activities Incompatible with the Practice of Public
Accountancy
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.

The simultaneous engagement in another business, occupation or activity

unrelated to professional services which has the effect of not allowing the
professional accountant to conduct a professional practice in accordance with
the fundamental ethical principles of the accountancy profession should be
regarded as incompatible with the practice of public accountancy.
Relations with Other Professional Accounts in Public Practice
- Accepting New Assignments
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.

When the accountant is providing additional services, but not replacing the existing
auditor, the receiving accountant should limit the services provided to the specific
assignment received. However, if the nature of the new appointment is of material
importance, the accountant should advise the client of the obligation to communicate with
the existing accountant and inform him of the general nature of the services provided.

If the accountant replaces the existing accountant, the proposed accountant should make
a direct communication with the existing accountant after obtaining the client’s permission.
Once the existing accountant receives the communication, he should reply advising the
proposed accountant of any reasons why the engagement should not be accepted.
Advertising and Solicitation
Advertising is the communication to the public of the information as to services
provided by professional accountant with a view to procuring professional
business. Solicitation, on the other hand, is an approach to a potential client for
the purpose of offering professional services.

Advertising and solicitation by individual professional accountants in public

practice are not permitted in the Philippines. However, the following forms of
publicity are permitted with certain restrictions;

Appointments and Awards

Publicity for appointments or award of any distinction given to a professional
accountant is acceptable provided it is not used for the professional
accountant’s personal advantage.

Books, Articles, Interviews, Lectures, Radio and Television Appearances

Books, articles, lectures, interviews, radio and television appearances are
allowed provided that what professional accountants write or say are not
promotional of themselves.
Professional Accountants Seeking Employment or Professional
Business
A professional accountant may inform interested parties through
any medium that a partnership or salaried employment of an
accountancy nature is being sought. A professional accountant
may write a letter or make a direct approach to another
professional accountant when seeking employment or
professional business.

Training Courses, Seminars, etc.

A professional accountant may invite clients, staff or other
professional accountants to attend training courses or seminars
conducted for the assistance of staff. Other persons should not
be invited to attend such training courses or seminars except in
response to an unsolicited request.

Websites
A professional accountant may develop and maintain website in
the internet provided that such website does not contain self-
laudatory statements designed to solicit clients.
Stationery and Nameplates
Stationery and nameplates of professional
accountants in public practice should be of an
acceptable professional standard. The designation
of any services provided by the practice as being
specialist nature should not be permitted.

Newspaper Announcements
Appropriate newspaper or magazines may be used
to inform the public of the genuine job vacancy,
establishment of a new practice, changes in the
composition of a partnership of professional
accountants in public practice, or any alteration in
the address of a practice. Such announcements
should be limited to a bare statement of facts and
consideration given to the appropriateness of the
area of distribution of the newspaper or magazine
and number of insertions.
Anniversaries
A professional accountant’s press and other media
releases or announcements or newspaper
supplements, of other similar publications, or other
commemorative media, or the holding of media
covered events undertaken only to commemorate
their anniversaries in public practice by informing the
public of their achievements or accomplishments in
contributing towards nation building and in
international understanding, goodwill, or relationship
or enhancing the image or standards of the
accounting profession do not violate the rules on
advertising and solicitation provided that such
announcement or undertakings contain only factual
matters without detailed listing of services. Such
undertaking should be done only every five years
of celebration.