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TitleAt-5903_code of Ethics
TagsAudit Confidentiality Certified Public Accountant Profession
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Table of Contents
                            AUDITING THEORY
	DEFINITIONS
		OBJECTIVES
		FUNDAMENTAL PRINCIPLES
		THE CODE
	PART A – APPLICABLE TO ALL PROFESSIONAL ACCOUNTANTS
	SECTION 1 - Integrity and Objectivity
	SECTION 2 - Resolution of Ethical Conflicts
	SECTION 3 - Professional Competence
	SECTION 4 - Confidentiality
SECTION 5 - Tax Practice
	SECTION 6 - Cross Border Activities
	SECTION 7 - Publicity
	SECTION 8 - Independence
	Provision of IT Systems Services to Audit Clients
		SECTION 9 - Professional Competence and Responsibilities Regarding the Use of Non-Accountants
			SECTION 10 - Fees and Commissions
			SECTION 11 - Activities Incompatible with the Practice of Public Accountancy
		SECTION 12 - Clients’ Monies
			SECTION 13 - Relations with Other Professional Accountants in Public Practice
	SECTION 14 - Advertising and Solicitation
		PART C- APPLICABLE TO EMPLOYED PROFESSIONAL ACCOUNTANTS
                        
Document Text Contents
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AT-5903

CPA REVIEW SCHOOL OF THE PHILIPPINES
M a n i l a



AUDITING THEORY


CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS IN THE PHILIPPINES

PREFACE


1. Which statement is incorrect regarding the Code of Ethics for Professional Accountants in the
Philippines?
a. Professional accountants refer to persons who are Certified Public Accountants (CPA)

and who hold a valid certificate issued by the Board of Accountancy.
b. Where a national statutory requirement is in conflict with a provision of the IFAC Code,

the IFAC Code requirement prevails.
c. The Code of Ethics for Professional Accountants in the Philippines is mandatory for all

CPAs and is applicable to professional services performed in the Philippines on or after
January 1, 2004.

d. Professional accountants should consider the ethical requirements as the basic principles
which they should follow in performing their work.


2. Which statement is correct regarding the Code of Ethics for Professional Accountants in the

Philippines?
a. Professional accountants refer to persons who are Certified Public Accountants (CPA) in

public practice and who hold a valid certificate issued by the Board of Accountancy.
b. It is practical to establish ethical requirements which apply to all situations and

circumstances that professional accountants may encounter.
c. Professional accountants should consider the ethical requirements as the ideal principles

which they should follow in performing their work.
d. All CPAs are expected to comply with the ethical requirements of the Code and other

ethical requirements that may be adopted and approved by IFAC. Apparent failure to do
so may result in an investigation into the CPA’s conduct.


Modifications to the IFAC Code


3. The following definitions from the IFAC Code were modified to consider Philippine regulatory
requirements and circumstances, except
a. Firm c. Professional accountants
b. Professional accountants in public practice d. Lead engagement partner


4. The following are modifications to the IFAC Code to consider Philippine regulatory

requirements and circumstances, except
a. The period for rotation of the lead engagement partner was changed from five to seven

years.
b. Advertising and solicitation by individual professional accountants in public practice were

not permitted in the Philippines.
c. Additional examples relating to anniversaries and websites wherein publicity is

acceptable, as provided in BOA Resolution 19, Series of 2000, were included.
d. Payment and receipt of commissions were not permitted in the Philippines.


DEFINITIONS


5. Assurance engagement include the following, except
a. An engagement conducted to provide a high level of assurance that the subject matter

conforms in all material respects with identified suitable criteria.
b. An engagement conducted to provide a moderate level of assurance that the subject

matter is plausible in the circumstances.
c. An engagement in accordance with the Philippine Standard on Assurance Engagement(s)

issued by the Philippine Auditing Standards and Practices Council as approved by the
Board of Accountancy/Professional Regulation Commission.

d. An engagement to perform agreed-upon procedures.


6. Close family include the following, except
a. Parent c. Non-dependent child
b. Sibling d. Spouse

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AT-5903

7. Assurance team include
a b c d

• All professionals participating in the assurance
engagement


Yes


Yes


Yes


Yes

• All others within a firm who can directly
influence the outcome of the assurance
engagement




Yes




Yes




No




No
• For the purposes of an audit client, all those

within a network firm who can directly influence
the outcome of the audit engagement





Yes





No





No





Yes


8. Financial interest means
a. Any bank account which is used solely for the banking of clients’ monies.
b. Any monies received by a professional accountant in public practice to be held or paid out

on the instruction of the person from whom or on whose behalf they are received.
c. A financial interest beneficially owned through a collective investment vehicle, estate,

trust or other intermediary over which the individual or entity has no control.
d. 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.


9. Direct financial interest is a financial interest

a b c d
• owned directly by and under the control of an

individual or entity (including those managed on
a discretionary basis by other)




Yes




Yes




Yes




No
• beneficially owned through a collective

investment vehicle, estate, trust or other
intermediary over which the individual or entity
has control





Yes





Yes





No





No
• beneficially owned through a collective

investment vehicle, estate, trust or other
intermediary over which the individual or entity
has no control





Yes





No





No





Yes

10. Firm includes the following, except

a. A sole practitioner professional accountant.
b. An entity that controls a partnership of professional accountants.
c. An entity controlled by a partnership of professional accountants.
d. A sole practitioner, partnership or corporation of professional accountants.


11. Which of the following is incorrect regarding independence?

a. Independence consists of independence of mind and independence in appearance.
b. Independence of mind is 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.

c. Independence in appearance is 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 firm's or a
member of the assurance team’s integrity, objectivity or professional skepticism had been
compromised.

d. Independence is a combination of impartiality, intellectual honesty and a freedom from
conflicts of interest.


12. A financial interest beneficially owned through a collective investment vehicle, estate, trust or

other intermediary over which the individual or entity has no control.
a. Indirect financial interest c. Financial instrument
b. Direct financial interest d. Clients’ monies


13. A combination of impartiality, intellectual honesty and a freedom from conflicts of interest.

a. Objectivity c. Professional skepticism
b. Independence of mind d. Independence

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AT-5903

61. Consideration of the nature of the safeguards to be applied will be affected by matters such
as the

a b c d
• Significance of the threat Yes Yes Yes Yes
• Nature of the assurance engagement Yes Yes Yes No
• Intended users of the assurance report Yes Yes No Yes
• Structure of the firm Yes No No No


62. The safeguards available to eliminate the threats or reduce them to an acceptable level

include
a b c d

• Safeguards created by the profession,
legislation or regulation

Yes Yes Yes Yes

• Safeguards within the assurance client Yes Yes No No
• Safeguards within the firm’s own systems and

procedures
Yes No No Yes


63. Safeguards created by the profession, legislation or regulation, include the following, except

a. Educational, training and experience requirements for entry into the profession.
b. Continuing education requirements.
c. Legislation governing the independence requirements of the firm.
d. Policies and procedures that emphasize the assurance client’s commitment to fair

financial reporting.

64. Safeguards within the assurance client, include the following, except

a. Professional standards and monitoring and disciplinary processes.
b. The assurance client has competent employees to make managerial decisions.
c. Internal procedures that ensure objective choices in commissioning non-assurance

engagements.
d. A corporate governance structure, such as an audit committee, that provides appropriate

oversight and communications regarding a firm’s services.

65. Safeguards within the firm’s own systems and procedures, include the following, except

a. Firm leadership that stresses the importance of independence and the expectation that
members of assurance teams will act in the public interest.

b. External review of a firm’s quality control system.
c. Policies and procedures to implement and monitor quality control of assurance

engagements.
d. Policies and procedures that will enable the identification of interests or relationships

between the firm or members of the assurance team and assurance clients.

66. When the safeguards available 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
a. Issuance of an adverse opinion.
b. Issuance of qualified opinion or disclaimer of opinion.
c. Issuance of unqualified opinion with explanatory paragraph.
d. Refusal to perform, or withdrawal from, the assurance engagement.


67. Which of the following is incorrect regarding engagement period?

a. 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.

b. 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 earlier.

c. In the case of an audit engagement, the engagement period includes the period covered
by the financial statements reported on by the firm.

d. 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 previous services provided to the audit client.

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AT-5903


Application of Principles to Specific Situations


Financial Interests – Provisions applicable to all assurance clients


68. If a member of the assurance team, or their immediate family member, has a direct financial
interest, or a material indirect financial interest, in the assurance client, the self-interest threat
created would be so significant the only safeguards available to eliminate the threat or reduce
it to an acceptable level would be to (choose the incorrect one)
a. Dispose of the direct financial interest prior to the individual becoming a member of the

assurance team.
b. Dispose of the indirect financial interest in total prior to the individual becoming a member

of the assurance team.
c. Dispose of a sufficient amount of the indirect financial interest so that the remaining

interest is no longer material prior to the individual becoming a member of the assurance
team.

d. Limit the participation of the member of the assurance team.

69. If a member of the assurance team, or their immediate family member receives, by way of,

for example, an inheritance, gift or, as a result of a merger, a direct financial interest or a
material indirect financial interest in the assurance client, a self-interest threat would be
created. The following safeguards should be applied to eliminate the threat or reduce it to an
acceptable level:
a. Disposing of the financial interest at the earliest practical date.
b. Removing the member of the assurance team from the assurance engagement.
c. Either a or b.
d. Neither a nor b.


70. When a member of the assurance team knows that his or her close family member has a

direct financial interest or a material indirect financial interest in the assurance client, a self-
interest threat may be created. Safeguards least likely include:
a. The close family member disposing of all or a sufficient portion of the financial interest at

the earliest practical date.
b. Discussing the matter with those charged with governance, such as the audit committee.
c. Involving a professional accountant who took part in the assurance engagement to review

the work done by the member of the assurance team with the close family relationship or
otherwise advise as necessary.

d. Removing the individual from the assurance engagement.

71. When a firm or a member of the assurance team holds a direct financial interest or a material

indirect financial interest in the assurance client as a trustee, a self-interest threat may be
created by the possible influence of the trust over the assurance client. Accordingly, such an
interest cannot be held when:
a. The member of the assurance team, an immediate family member of the member of the

assurance team, and the firm are beneficiaries of the trust.
b. The interest held by the trust in the assurance client is not material to the trust.
c. The trust is not able to exercise significant influence over the assurance client.
d. The member of the assurance team or the firm does not have significant influence over

any investment decision involving a financial interest in the assurance client.

72. An inadvertent violation of the Independence rules as it relates to a financial interest in an

assurance client would not impair the independence of the firm, the network firm or a member
of the assurance team when:
a. The firm, and the network firm, has established policies and procedures that require all

professionals to report promptly to the firm any breaches resulting from the purchase,
inheritance or other acquisition of a financial interest in the assurance client.

b. The firm, and the network firm, promptly notifies the professional that the financial interest
should be disposed of.

c. The disposal occurs at the earliest practical date after identification of the issue, or the
professional is removed from the assurance team.

d. All of the above.

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AT-5903

SECTION 13 - Relations with Other Professional Accountants in Public Practice


115. Which statement is incorrect regarding relations with other professional accountants in public
practice?
a. Professional accountants in public practice should only undertake the services which they

can expect to complete with professional competence.
b. The wishes of the client should be paramount in the choice of professional advisers,

whether or not special skills are involved.
c. 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.
d. The receiving accountant may express any criticism of the professional services of the

existing accountant without giving the latter an opportunity to provide all relevant
information.


116. Communication between the receiving accountant and existing accountant is not intended

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.

d. To restrict the client’s freedom to choose their professional advisers and to change to
others.


117. The existing accountant, on receipt of the communication from the proposed professional

accountant in public practice, should not
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. Ensure that the client has given permission to give details of this information to the

proposed professional accountant in public practice.
c. Report the fact, that the permission is not granted, to the proposed professional

accountant in public practice.
d. Disclose all information needed by the proposed professional accountant in public

practice to be able to decide whether or not to accept the appointment, if permission is
not granted.


SECTION 14 - Advertising and Solicitation


118. Which of the following is true regarding advertising and solicitation?
a. Advertising, but not solicitation, by individual professional accountants in public practice is

permitted in the Philippines.
b. It is clearly desirable that the public should be aware of the range of services available

from a professional accountant.
c. Solicitation, but not advertising, by individual professional accountants in public practice is

permitted in the Philippines.
d. A professional accountant in public practice in the Philippines, where advertising is

prohibited, may advertise in a newspaper or magazine published in a country where
advertising is permitted.


119. Publicity by individual professional accountants in public practice is acceptable provided:

a b c d
• It has as its object the notification to the public

or such sectors of the public as are concerned,
of matters of fact in a manner that is not false,
misleading or deceptive





Yes





Yes





No





Yes
• It is in good taste Yes Yes Yes Yes
• It is professionally dignified Yes Yes Yes No
• It avoids frequent repetition of, and any undue

prominence being given to the name of the
professional accountant in public practice




Yes




No




No




Yes

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AT-5903

120. Which of the following is not acceptable?
a. An appointment of a professional accountant in a matter of national importance was

publicized.
b. A professional accountant writes a letter to another professional accountant seeking

employment or professional business.
c. A professional accountant is listed in a directory that could reasonably be regarded as a

promotional advertisement for those listed therein.
d. A professional accountant who authored an article on professional subject, stated his

name and professional qualifications and gave the name of his organization.

121. Which of the following is acceptable?

a. A professional accountant invited a potential client to attend training courses or seminars
conducted for the assistance of staff.

b. Job specification that gives some detail as to one or more of the services provided to
clients by the professional accountant in public practice was communicated to the public
through the classified ads section of a newspaper.

c. A professional accountant in public practice indicated in his stationery that he is a tax
expert.

d. A professional accountant developed a website that contains self-laudatory statements
designed to solicit clients.


122. Professional accountant who author books or articles on professional subjects, may state

a b c d
• His or her name Yes Yes Yes Yes
• Professional qualifications Yes Yes Yes No
• Name of organization Yes Yes No No
• Information as to the services his or her firm

provide


Yes


No


No


No

123. A professional accountant may invite the following to attend training courses or seminars

conducted for the assistance of staff
a b c d

• Clients Yes Yes No No
• Staff Yes Yes Yes Yes
• Other professional accountants Yes Yes No No
• Potential clients Yes No Yes No


PART C- APPLICABLE TO EMPLOYED PROFESSIONAL ACCOUNTANTS


124. Which statement is incorrect regarding employed professional accountants?
a. Employed professional accountants owe a duty of loyalty to their employer as well as to

the profession, therefore there may be no time that the two will be in conflict.
b. A professional accountant, particularly one having authority over others, should give due

weight for the need for them to develop and hold their own judgment in accounting
matters and should deal with difference of opinion in a professional way.

c. When undertaking significant tasks for which a professional accountant has not had
sufficient specific training or experience, he or she should not mislead the employer as to
the degree of expertise or experience he or she possesses, and where appropriate,
expert advice and assistance should be sought.

d. A professional accountant is expected to present financial information fully, honestly and
professionally and so that it will be understood in its context.


- end of AT-5903 -

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