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Code of Ethics for Professional

I.

General Application Of The Code

Should take qualitative as well as quantitative


factors into account when considering the
III.
Responsibility of a Professional Accountant
significance of a threat.
to satisfy the needs of an individual client or

If a professional accountant cannot implement


employer
safeguards, the accountant should decline or
to act in the public interest
IV.
Fundamental Principles
discontinue the specific service or when
V.
A professional accountant should have
necessary resign from the client or the company
Integrity should be straightforward and honest in
May inadvertently violate a provision of this
all professional and business relationships -fair dealing
code, depending on the nature and significance of
and truthfulness
the matter and may not compromise compliance
Objectivity should not allow bias, conflict of
with the fundamental principles provided
interest or undue influence of others to override
VI.
Threats
professional or business judgements.
Professional Competence and Due Care should
Self-Interest
Self-review
maintain professional knowledge and skill and act
Advocacy
diligently and in accordance with applicable technical
Familiarity
and
professional
standards
when
providing
Intimidation
professional services

Safeguards increases the likelihood of identifying


Phases
of
Professional
Competence
or deterring unethical behaviour.
(1) Attainment- requires initially a high standard of
Created by the profession, legislation or regulation
general and specific education, training and a
In the work environment
period of work experience (2) Maintenance Ethical Conflict Resolution
requires a continuing awareness and an
A professional accountant should consider the
understanding of relevant technical professional
following as part of the resolution process and
and business developments
then determine the appropriate course of action
Diligence encompasses the responsibility to act in
that is consistent with the fundamental principles
accordance with the requirements of an
identified.
assignment, carefully, thoroughly, and on a timely
Relevant facts
basis.
Ethical issues involved
Where appropriate, he should
make clients,
Fundamental principles related to matter in question
employers or other users aware of limitations
Established internal procedures
inherent in the services to avoid the
Alternative courses of action
misinterpretation of an expression of opinion as an
If the matter remains unresolved, he should
assertion of fact.
consult with other appropriate persons within the
Confidentiality should respect the confidentiality
firm
of information acquired as a result of professional and
Conflict within the organization, he should also
business relationships
consider consulting with those charged with
The need to comply with the principle of
governance of the organization like the BOD or
confidentiality continues even after the end of
Audit committee
relationships between a professional accountant
He may document the substance of the issue and
and a client or employer.
details of any discussions held or decisions taken
Disclosure may be appropriate when:
If significant conflict, he may wish to obtain
Permitted by law
professional advice from the relevant professional
Authorized by the client or employer
body or legal advisors and thereby obtain
There is professional duty or right to
guidance on ethical issues without breaching
disclose, when not prohibited by law
confidentiality.
Professional Behaviour should comply with
If, after exhausting all relevant possibilities, the
relevant laws and regulation and should avoid any
ethical conflict remains unresolved, he should,
action that discredits the profession
where possible, refuse to remain associated with
Should NOT (1) make exaggerated claim for the
the matter creating the conflict.
services, qualifications and experience (2) Make
VII.
disparaging
references
or
unsubstantiated
VIII.
comparisons to the work of others
IX.
Conceptual Framework
X.
This code provide a framework to assist a
XI.
Professional Accountants In Public Practice
professional accountant to identify and respond XII.
to
XIII.
threats to compliance with the fundamental principles

Responsibility of a Professional Accountant in


and where appropriate, apply safeguards to eliminate
Public Practice
the threats or reduce them to an acceptable level.

Should not engage in any business,


A professional accountant should
occupation or activity that impairs or might impair
Has an obligation to evaluate any threats to
integrity, objectivity or the good reputation of the
compliance with fundamental principles
profession
Threats and Safeguards Examples
II.

Self-Interest threats
Financial interest in a client or jointly holding a
financial interest with a client
Undue Dependence on total fees from a client
Having a close business relationship with a
client
Concern about the possibility of losing a client
Potential employment with a client
Contingent fees
relating to an assurance
engagement
Self-review threats
The discovery of a significant error during a reevaluation of the work of the professional
accountant in public practice.
Reporting on the operation of financial systems
after being involved in their design or
implementation.
Having prepared the original data used to
generate records that are the subject matter of the
engagement.
A member of the assurance team being, or having
recently been, a director or officer* of that client.
A member of the assurance team being, or having
recently been, employed by the client in a position
to exert direct and significant influence over the
subject matter of the engagement.
Performing a service for a client that directly
affects the subject matter of the assurance
engagement.

Advocacy
Promoting shares in a listed entity when that entity
is a financial statement audit client.
Acting as an advocate on behalf of an assurance
client in litigation or disputes with third parties.

Familiarity
A member of the engagement team having a close
or immediate family relationship with a director or
officer of the client.
A member of the engagement team having a close
or immediate family relationship with an employee
of the client who is in a position to exert direct and
significant influence over the subject matter of the
engagement.
A former partner of the firm being a director or
officer of the client or an employee in a position to
exert direct and significant influence over the
subject matter of the engagement.
Accepting gifts or preferential treatment from a
client, unless the value is clearly insignificant.
Long association of senior personnel with the
assurance client.

Intimidation
Being threatened with dismissal or replacement in
relation to a client engagement.
Being threatened with litigation.
Being pressured to reduce inappropriately the
extent of work performed in order to reduce fees.

SAFEGUARDS
May eliminate or reduce threats to an acceptable
level fall into two broad categories: (a) Safeguards
created by the profession, legislation or
regulation and (b) Safeguard in the work
environment.
Work environment safeguards comprise
1.Firm-wide safeguards and
2.Engagement specific safeguards.

Depending on the nature of the engagement, a


professional accountant in public practice may
also be able to rely on safeguards that the
client has implemented.
Professional Appointment

Client Acceptance
Before accepting a new client relationship, a
professional accountant in public practice should
consider whether acceptance would create any
threats to compliance with the fundamental
principles
Client issues that could threaten compliance with
the fundamental principles include, for example,
client involvement in illegal activities, dishonesty or
questionable financial reporting practices.

The significance of any threats should be


evaluated. If identified threats are other than
clearly insignificant, safeguards should be
considered and applied as necessary to eliminate
them or reduce them to an acceptable level.
Appropriate safeguards may include obtaining
knowledge and understanding of the client, its
owners, managers and those responsible for its
governance and business activities, or securing
the clients commitment to improve corporate
governance practices or internal controls.
Where it is not possible to reduce the threats to
an acceptable level, a professional accountant in
public practice should decline to enter into the
Client relationship.

Acceptance decisions should be periodically


reviewed for recurring client engagements.

Engagement Acceptance
A professional accountant in public practice should
agree to provide only those services that the
professional accountant in public practice is
competent to perform.
When a professional accountant in public practice
intends to rely on the advice or work of an expert,
he should evaluate whether such reliance is
warranted.

Changes in a Professional Appointment


A professional accountant in public practice who is
asked to replace another professional accountant
in public practice, or who is considering tendering
for an engagement currently held by another
professional accountant in public practice, should
determine whether there are any reasons,
professional or other, for not accepting the
engagement, such as circumstances that threaten
compliance with the fundamental principles.
A professional accountant in public practice will
ordinarily need to obtain the clients permission,
preferably in writing, to initiate discussion with an
existing accountant.
Conflicts of Interest
He should take reasonable steps to identify
circumstances that could pose a conflict of interest
He should evaluate the significance of any threats
Where a professional accountant in public practice
has requested consent from a client to act for
another party (which may or may not be an
existing client) in respect of a matter where the
respective interests are in conflict and that consent
has been refused by the client, then he must not

continue to act for one of the parties in the matter


Assurance engagements are designed to enhance
giving rise to the conflict of interest.
intended users degree of confidence about the
Second Opinions
outcome of the evaluation or measurement of a
Situations where a professional accountant in
subject matter against criteria.
public practice is asked to provide a second
Assurance engagements may be assertionopinion on the application of accounting, auditing,
based or direct reporting.
reporting or other standards or principles to

In either case they involve three separate


specific circumstances or transactions by or on
parties: a public accountant in public practice, a
behalf of a company or an entity that is not an
responsible party and intended users.
Independence requires:
existing client may give rise to threats to

Independence of Mind- The state of mind


compliance with the fundamental principles.
If the company or entity seeking the opinion will
that permits the expression of a conclusion
not permit communication with the existing
without being affected by influences that
accountant, he should consider whether, taking all
compromise professional judgment, allowing an
the circumstances into account, it is appropriate to
individual to act with integrity, and exercise
provide the opinion sought.
objectivity and professional scepticism.
Fees and Other Types of Remuneration

Independence in Appearance -The


When entering into negotiations regarding
avoidance of facts and circumstances that are
professional services, a professional accountant in
so significant that a reasonable and informed
public practice may quote whatever fee deemed to
third party, having knowledge of all relevant
be appropriate.
information, including safeguards applied, would
The fact that one professional accountant in
reasonably conclude a firms, or a member of
public practice may quote a fee lower than
the assurance teams, integrity, objectivity or
another is not in itself unethical.
professional scepticism had been compromised.
Fees charged for assurance engagements should
Engagement Period
be a fair reflection of the value of the work
The period of the engagement starts when the
involved and should take into account, among
assurance team begins to perform assurance
others:
services and ends when the assurance report is
the skill and knowledge required for the
issued, except when the assurance engagement is
type of work involved;
of a recurring nature.
the level of training and experience of the
If the assurance engagement is expected to recur,
persons necessarily engaged on the work;
the period of the assurance engagement ends with
the time necessarily occupied by each
the notification by either party that the professional
person engaged on the work; and
relationship has terminated or the issuance of the
The degree of responsibility and urgency
final assurance report, whichever is later.
that the work entails.
In the case of a financial statement audit
He may purchase all or part of another firm on the
engagement, the engagement period includes the
basis that payments will be made to individuals
period covered by the financial statements
formerly owning the firm or to their heirs or estates
reported on by the firm
He may receive a referral fee or commission
XIV.
relating to a client.
XV. Professional Accountants In Business
Marketing Professional Services
XVI.

Examples of circumstances that may create


When a professional accountant in public practice
self-interest threats for a professional accountant in
solicits new work through advertising or other
business include, but are not limited to:
forms of marketing, there may be potential threats

Financial interests, loans or guarantees.


to compliance with the fundamental principles.
Incentive compensation arrangements.
If the he is in doubt whether a proposed form of
Inappropriate personal use of corporate assets.
advertising or marketing is appropriate, he should
Concern over employment security.
consult with the relevant professional body.
Commercial pressure from outside the employing
Gifts and Hospitality
organization.
Where gifts or hospitality which a reasonable and

Circumstances that may create self-review


informed third party, having knowledge of all
threats
include,
but are not limited to, business
relevant information, would consider clearly
decisions or data being subject to review and
insignificant are made a professional accountant in
justification by the same professional accountant in
public practice may conclude that the offer is
business responsible for making those decisions or
made in the normal course of business without the
preparing that data.
specific intent to influence decision making or to

When furthering the legitimate goals and


obtain information.
objectives of their employing organizations
Custody of Client Assets
professional accountants in business may promote
A professional accountant in public practice should
the organizations position, provided any statements
not assume custody of client monies or other
made are neither false nor misleading. Such actions
assets unless permitted to do so by law and, if so,
generally would not create an advocacy threat.
in compliance with any additional legal duties

Examples of circumstances that may create


imposed on a professional accountant in public
familiarity threats include, but are not limited to:
practice holding such assets.
Independence Assurance Engagements

A professional accountant in business in a position


to influence financial or non-financial reporting or
business decisions having an immediate or close
family member who is in a position to benefit from
that influence.
Long association with business contacts
influencing business decisions.
Acceptance of a gift or preferential treatment,
unless the value is clearly insignificant.
Examples of circumstances that may create
intimidation threats include, but are not limited to:
Threat of dismissal or replacement of the
professional accountant in business or a close or
immediate family member over a disagreement
about the application of an accounting principle or
the way in which financial information is to be
reported.
A dominant personality attempting to influence the
decision making process, for example with regard
to the awarding of contracts or the application of
an accounting principle.
Safeguards in the work environment include, but
are not restricted to:
The employing organizations systems of
corporate oversight or other oversight structures.
The employing organizations ethics and conduct
programs.
Recruitment procedures in the employing
organization emphasizing the importance of
employing high calibre competent staff.
Strong internal controls.
Appropriate disciplinary processes.
Leadership that stresses the importance of ethical
behaviour and the expectation that employees will
act in an ethical manner.
Policies and procedures to implement and monitor
the quality of employee performance.
Timely
communication
of
the
employing
organizations policies and procedures, including
any changes to them, to all employees and
appropriate training and education on such
policies and procedures.
Policies and procedures to empower and
encourage employees to communicate to senior
levels within the employing organization any
ethical issues that concern them without fear of
retribution.
Consultation with another appropriate professional
accountant.
Potential Conflict
A professional accountant in business has a
professional obligation to comply with the
fundamental principles. There may be times,
however, when their responsibilities to an
employing organization and the professional
obligations to comply with the fundamental
principles are in conflict.
Preparation and Reporting of Information

A professional accountant in business who


has responsibility for the preparation or approval
of the general purpose financial statements of an
employing organization should ensure that those
financial statements are presented in accordance
with the applicable financial reporting standards.
Acting With Sufficient Expertise

A professional accountant in business


should not intentionally mislead an employer as to
the level of expertise or experience possessed,
nor should a professional accountant in business
fail to seek appropriate expert advice and
assistance when required.
Financial Interests

Professional accountants in business may


have financial interests, or may know of financial
interests of immediate or close family members,
that could, in certain circumstances, give rise to
threats to compliance with the fundamental
principles.
Receiving Offers

Inducements may take various forms,


including gifts, hospitality, preferential treatment
and inappropriate appeals to friendship or loyalty.
Making Offers

A professional accountant in business may


be in a situation where the professional
accountant in business is expected to, or is under
other pressure to, offer inducements to
subordinate the judgment of another individual or
organization, influence a decision-making process
or obtain confidential information.
XVII.
XVIII.
Definitions
XIX.
XX. In this Code of Ethics for Professional Accountants
the following expressions have the following meanings
assigned to them:
Advertising. The communication to the public of
information as to the services or skills provided by
professional accountants in public practice with a
view to procuring professional business.
Assurance client .The responsible party that is the
person (or persons) who:
XXI.
(a) In a direct reporting engagement, is
responsible for the subject matter; or
XXII.
(b) In an assertion-based engagement, is
responsible for the subject matter information and
may be responsible for the subject matter.
Assurance engagement. An engagement in which a
professional accountant in public practice expresses
a conclusion designed to enhance the degree of
confidence of the intended users other than the
responsible party about the outcome of the evaluation
or measurement of a subject matter against criteria.
Assurance team
XXIII.
(a) All professionals participating in the
assurance engagement;
XXIV.
(b) All others within a firm who can directly
influence the outcome of the assurance engagement,
including:
XXV. (i) those
who
recommend
the
compensation of, or who provide direct supervisory,
management or other oversight of the assurance
engagement partner in connection with the
performance of the assurance engagement. For the
purposes of an audit engagement, this includes
those at all successively senior levels above the
lead engagement partner through the firms chief
executive;
XXVI.
(ii) Those who provide consultation
regarding technical or industry specific issues,
transactions or events for the assurance

engagement; and (iii) those who provide quality


control for the assurance engagement; and
XXVII.
(c) For the purposes of an audit client, all
those within a network firm who can directly influence
the outcome of the audit engagement.
Clearly insignificant A matter that is deemed to be
both trivial and inconsequential.
Close family. A parent, child or sibling, who is not an
immediate family member.
Contingent fee. A fee calculated on a predetermined
basis relating to the outcome or result of a transaction
or the result of the work performed. A fee that is
established by a court or other public authority is not
a contingent fee.
Direct financial interest. A financial interest:
XXVIII. -owned directly by and under the control of
an individual or entity (including those managed on a
discretionary basis by others); or
XXIX. -beneficially owned through a collective
investment vehicle, estate, trust or other intermediary
over which the individual or entity has control.
Director or officer. Those charged with the
governance of an entity, regardless of their title, which
may vary from country to country.
Engagement partner. The partner or other person in
the firm who is responsible for the engagement and
its performance, and for the report that is issued on
behalf of the firm, and who, where required, has the
appropriate authority from a professional, legal or
regulatory body.
Engagement quality control review. A process
designed to provide an objective evaluation, before
the report is issued, of the significant judgments the
engagement team made and the conclusions they
reached in formulating the report.
Engagement team
XXX. All personnel performing an engagement,
including any experts contracted by the firm in
connection with that engagement.
Existing accountant A professional accountant in
public practice currently holding an audit appointment
or carrying out accounting, taxation, consulting or
similar professional services for a client.
Financial interest An interest in an equity or other
security, debenture, loan or other debt instrument of
an entity, including rights and obligations to acquire
such an interest and derivatives directly related to
such interest.
Financial statements
XXXI. The balance sheets, income statements or
profit and loss accounts, statements of changes in
financial position (which may be presented in a
variety of ways, for example, as a statement of cash
flows or a statement of fund flows), notes and other
statements and explanatory material which are
identified as being part of the financial statements.
Financial statement audit client. An entity in
respect of which a firm conducts a financial statement
audit engagement. When the client is a listed entity,
financial statement audit client will always include its
related entities.
Financial statement audit engagement
XXXII. A reasonable assurance engagement in
which a professional accountant in public practice
expresses an opinion whether financial statements
are prepared in all material respects in accordance

with an identified financial reporting framework, such


as an engagement conducted in accordance with
Philippine Standards on Auditing. This includes a
Statutory Audit, which is a financial statement audit
required by legislation or other regulation.
XXXIII. Firm (a) A sole proprietor or partnership of
professional accountants;
XXXIV. (b) An entity that controls such parties
through ownership, management or other means;
and
XXXV. (c) An entity controlled by such parties
through ownership, management or other means.

Immediate family.
A spouse (or equivalent) or
dependent.
Independence is:
XXXVI. (a) Independence of mind the states 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 judgment
XXXVII. (b) Independence in appearance the
avoidance of facts and circumstances that are so
significant a reasonable and informed third party,
having knowledge of all relevant information,
including any safeguards applied, would reasonably
conclude a firms, or a member of the assurance
teams, integrity, objectivity or professional scepticism
had been compromised.
Indirect financial interest
XXXVIII. A financial interest beneficially owned
through a collective investment vehicle, estate, trust
or other intermediary over which the individual or
entity has no control.
Listed entity. An entity whose shares, stock or debt
are quoted or listed on a recognized stock exchange,
or are marketed under the regulations of a
recognized stock exchange or other equivalent body.
Network. A larger structure:
XXXIX. (a) That is aimed at co-operation,
and

XL.
(b) That is clearly aimed at profit or cost
sharing or shares common ownership, control or
management, common quality control policies and
procedures, common business strategy, the use of a
common brand-name, or a significant part of
professional resources.
Network firm. A firm or entity that belongs to a
network.
Professional accountant
XLI.
An individual who holds a valid certificate
issued by the Board of Accountancy (i.e., Certified
Public Accountant), whether he/she be in public
practice, industry, commerce, the public sector or
education.
Professional accountant in public practice
XLII.
A sole proprietor, or each partner or person
occupying a position similar to that of a partner
and each staff in a practice providing professional
services to a client irrespective of their functional
classification (e.g., audit, tax or consulting) and
professional accountants in a practice having
managerial responsibilities. This term is also used

to refer to a firm of professional accountants in


public practice.
Professional services
XLIII.
Services requiring accountancy or related
skills performed by a professional accountant
including accounting, auditing, taxation, management
consulting and financial management services.
Publicity The communication to the public of facts
about a professional accountant which are not
designed for the deliberate promotion of that
professional accountant.
Related entity An entity that has any of the following
relationships with the client:
XLIV.
(a) An entity that has direct or indirect
control over the client provided the client is material
to such entity;

XLV.
(b) An entity with a direct financial interest
in the client provided that such entity has significant
influence over the client and the interest in the client
is material to such entity;
XLVI.
(c) An entity over which the client has direct
or indirect control;
XLVII. (d) An entity in which the client, or an entity
related to the client under (c) above, has a direct
financial interest that gives it significant influence over
such entity and the interest is material to the client
and its related entity in (c); and
XLVIII. (e)An entity which is under common control
with the client (hereinafter a sister entity) provided
the sister entity and the client are both material to the
entity that controls both the client and sister entity.

XLIX.

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