auditing theory code of ethics

Under R.A. 9298Links to an external site. also known as the “Philippine Accountancy Act of 2004”
what are the four sectors in the practice of acccountancy

Public Accountancy - involves rendering audit or accounting services to more than 1 client or public clients on fee basis
Practice in Commerce and Industry - employment in the private sector that assist management in making bsiness and financila decision, such position requires a holder must be a cpa.
Practice in EducationAcademe - Employment in educational institutions that involves teaching accounting subjects
Practice in Government - employment in government agencies or governement owned coprorations

civil service eligibility as a CPA is prerequisite

3 requirements to qualify to practice the accountancy profession

• holder of BSA degree

• pass the CPA licensure exam

• be accredited by the board of accountancy

• acquire minimum of 3 meaningful years of experience in any areas of public practice

• completed the requireed 120 conntinuing professional development credit unit by RA10912

5 Fundamental ethical principles

Professional competence and due care - maintain professional knowledge and skils to ensure competent service
Integrity - accountants must be straightforward, honest,truthful

Professional behaviour - comply to relevenat laws and avoid things that discredits the profession
Objectivity - An accountant must avoid bias, conflicts of interest, or undue influence
Confidentiality - accountant must not disclose client informations without proper authority

Conceptual Framework: Ethical Decision-Making
When faced with an ethical dilemma, follow these 3 steps:

• Identify threats to the fundamental principles.

• Evaluate the significance of identified threats.

• Apply safeguards to eliminate or reduce threats to an acceptable level.

Define PAIBs
Responsibilities of PAIBS (AAR)
3 NOCLAR( IF AN ACCOUNTANCT DISCOVERS FRAUD/CORRUPTION)

PRO ACCOUNTANTS WORKING IN CORPORATION, GOVERNMENT AND NON PROFITS

RESPONSIBILITIES

• Apply ethical principles in financial management and corporate governance.

• Avoid conflicts of interest and refuse undue pressure from bosses or superiors.

• Report non compliance with laws and regualtions(NOCLAR)

NOCLAR

• Assess the severity of the violation.

• Escalate the issue internally (to executive managers or the Board of Directors).

• Report externally to proper legal authorities if management fails to act.

Define PAPPs
3 Responsibilities (MIMSAC)
4 Specific ethical considerations

Public accountants provides audit,tax and advisory services

RESPONSIBILITIES

• Maintain independence and professional skepticism.

• Maintain strict quality control over all audit and advisory engagements.

• Avoid conflicts of interest and disclose them whenever necessary.

SPECIFIC ETHICAL CONSIDERATIONS

• Client Acceptance (Sec. 320): Always assess risks before agreeing to take on a new client.

• Conflicts of Interest (Sec. 310): Do not represent two clients whose interests directly oppose each other.

• Fees and Remuneration (Sec. 330): Never accept fee setups (like contingency fees) that could impair your objectivity.

• Gifts and Hospitality (Sec. 340): Accept gifts or favors only if they are small and won't influence your professional judgment.

Independence for Audit and Review Engagements (Part 4A)

5 Threats to auditor independence (Si-Sr-A-F-I)

• Auditors must maintain independence both in mind (unbiased thinking) and in appearance (looking unbiased to the public).

5 threats to auditor independence

• Self-Interest Threat:

  • Meaning: Having a financial or personal stake in the client's success.

  • Example: An auditor who owns shares/stock in a client's business.

• Self-Review Threat:

  • Meaning: Reviewing or auditing your own prior work.

  • Example: An accounting firm auditing financial statements that they helped build/prepare.

• Advocacy Threat:

  • Meaning: Actively promoting or defending a client's side.

  • Example: An auditor defending a client in court or tax disputes while auditing their numbers.

• Familiarity Threat:

  • Meaning: Being too close or friendly with client personnel after years of working together.

  • Example: An auditor who is best friends with the client's CEO.

• Intimidation Threat:

  • Meaning: Being bullied, threatened, or pressured by client leadership.

  • Example: A client threatening to replace the external auditor if they disclose fraudulent transactions.

How Accountants Prevent These Threats (Safeguards) (REIR)

• Rotate audit partners periodically to avoid familiarity threats.

• Establish internal policies prohibiting financial interests in client companies.

• Implement independent peer reviews of audit work.

• Require mandatory cooling-off periods before accepting key management roles in client firms.
  
  in laymans term

• Rotate the Auditor: Change the lead auditor every few years so they don't get too friendly with the client (stops Familiarity).

• No Stocks Allowed: Auditors are strictly forbidden from buying shares in companies they audit (stops Self-Interest).

• Cooling-Off Period: If an auditor leaves an accounting firm, they must wait a set amount of time before taking a job at a company they used to audit.

• Peer Reviews: Having a second, independent team check the primary auditor's work.

Enforcement and Disciplinary Actions

If a CPA violates the Code of Ethics, they face:

• PRC-BOA Sanctions: License suspension or permanent revocation.

• Legal Penalties: Criminal/civil fines or imprisonment under corporate laws.

• Reputational Loss: Loss of public trust and professional career standing.