Salac, Ramon Kristian

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1. Why is there a need for a Code of Ethics in the profession?

The acceptance of responsibility of any professionals for the people they serve is

represented by the Code of Ethics (Cabrera & Cabrera, 2020). A CPA must follow the

Code since many individuals and establishments depend upon the services CPAs cater

to their businesses or organizations. Other than that, the code of ethics also entails the

dos and don’ts in the accounting profession as it aims to make the standard of

competence complied upon while it regulates the relationship among the professionals.

In return for doing such, it protects the image of the accounting profession and the

professionals that work in the said field. It is like a guide or outline of what is to be done

and what is expected among professionals in the field.

Moreover, maintaining the profession’s image also entails that businesses or

firms and every individual in the organization must strictly follow the guiding principles of

the organization. According to the University of West Florida (2017), a need for the

Code of Ethics among professionals arises when they are to maintain their credibility

and trust of the public by administering honesty and integrity in the said profession.

Hence, for accountants, a set of Code of Ethics is pivotal for them to deal with the

public's interest as they continue to give confidence to the public as all professionals do

in other professions (Cabrera & Cabrera, 2020).

2. What are the fundamental principles of the Code to which the accountant is

required to comply?
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The International Federation of Accountants (2006) mentions that in the Philippines,

The Code of Ethics to be followed by professional accountants is composed of the five

fundamental principles: Integrity; Objectivity; Professional Competence and Due Care;

Confidentiality; and Professional Behavior.

a. Integrity – is an accountant’s responsibility to display honesty and accomplish all

their professional endeavors with as much truthfulness and fairness as possible.

Getting an accountant’s name tied with any misleading or false information must

be avoided to uphold this principle.

b. Objectivity – is the practice expected of accountants to avoid conflicts of interest

or at least prevent it from clouding their judgment which would result in a biased

decision due to the conflict’s influence. 

c. Professional Competence and Due Care – pertains to an accountant’s duty to

ensure clients that they are receiving competent services that are accomplished

with the guidance of the standards. This principle has 2 portions: Attainment of

Professional Competence and Maintenance of Professional Competence, both of

which are self-explanatory, but the Maintenance section is where the CPDs

become handy as they help accountants to keep up to date with the

developments in the profession. 

d. Confidentiality – is the principle where accountants must observe the avoidance

of disclosing classified information to the public or any unintended user of such

information. Professional accountants need to maintain confidentiality with their

social environment, clients, and even workmates and other individuals within the

organization to protect sensitive information and maintain confidentiality, this

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shows how strict the Code of Ethics is as there are only a few instances where

accountants can disclose confidential information such as when it is required by

the law, is permitted by the law, client, or employer.

e. Professional Behavior – is the responsibility of accountants to comply with the

regulatory rules while avoiding reputation-tainting actions in the profession. 

3. What are the threats to compliance with the fundamental principles? Identify

and explain each. Provide examples as well.

Cabrera & Cabrera (2020) identifies the threats to compliance with the

fundamental principles which include Self-interest, Self-review, Advocacy, Familiarity,

and Intimidation/Adverse/Undue Influence, and defines threats to compliance as threats

that compromise the fundamental principles required to be upheld by professional

accountants.

a. Self-Interest – refers to the benefit that an accountant may gain financially

which is not a result of the accountant’s professional relationship with a client.

Which ultimately poses an inappropriate influence on the accountant’s

judgment. Some examples are:

i. Material joint venture with a client

ii. Close business relationship with a client

b. Self-Review – is the threat pertaining to accountants not duly evaluating the

prior judgment or service performed by the accountant or of other

appropriately responsible individuals. Some examples are:

i. Performing bookkeeping services for a client

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ii. Being involved in the operations of a financial system even if the

accountant was already involved in the systems design process

c. Advocacy – is the threat of accountants promoting or advocating for a client

in a way that compromises objectivity or independence. Some examples are:

i. Endorsement of the client’s products and/or services

ii. Being an audit client’s representative in the Court of Tax Appeals

d. Familiarity – is pertaining to the threat of accountants’ being sympathetic to a

client or employer because of the long-standing relationship between them.

Some examples are:

i. Accepting gifts of significant value from clients

ii. Immediate or close family members as clients

e. Intimidation/Adverse/Undue Influence – is the pressure coming from

threats that hinder accountants to act objectively while avoiding being

affected by such influence. Some examples are:

i. Threats of being litigated

ii. Threats of being dismissed

4. In the practice of profession, how do we ensure that these threats are

eliminated or reduced to an acceptable level? What are the classifications of

such and give examples?

Accountants are to apply Safeguards in their pursuit of reducing or eliminating

the said risks, these safeguards are measures applied or to be applied by accountants

to help them reduce threats to an acceptable level or eliminate the said threats
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completely. They are to be distinguished into two categories, namely: those created by

the legislation, profession, and regulation; and those in the work environment.

Passing requirements before entering the profession such as educational,

training, and experience requirements; Professional standards; External review by a

legally empowered third party of the reports or any information produced by the

accountant; Continuing Professional Development requirements; Corporate

Governance regulations; and lastly Effective complaint system by the organization to

draw attention from the colleagues, employers, or the members of the public for

unethical behaviors made. These are the safeguards created by the profession,

legislation, and regulation but are not limited to these alone (Cabrera & Cabrera, 2020).

Meanwhile, safeguards in the work environment include engagement-specific

safeguards and firm-wide safeguards. Firm-wide safeguards include Implementation of

the policies and procedures regarding quality control; Monitoring policies and

procedures to ensure the compliance of the personnel; Timely communication policies

and procedures; Leaders in the firm that stresses the importance of following the

fundamental principles; Documented internal policies regarding the compliance of the

firm to the fundamental principles; and many more. Engagement-specific safeguards on

the other hand include Having a professional accountant, which is not a member of an

assurance team, review the assurance work performed; Rotating senior assurance

personnel; Involving another firm to perform or re-perform a part of the engagement

procedure; Discussing ethical issues to personnel in charge with good governance; and

etc.
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5. What provisions under the Code of Ethics are unique for the practice of public

accounting?

Part B of the Code of Ethics from sections 200-290 is where the Code of Ethics

that pertains to the public practice of accounting is located. The content of each section

is as follows: 

I. Section 200 – Introduction to the Code of Ethics in Public Practice and the

Threats and Safeguards

II. Section 210 – Professional Appointment

III. Section 220 – Conflict of Interest

IV. Section 230 – Second Opinions

V. Section 240 – Fees and Other Types of Remunerations

VI. Section 250 – Marketing Professional Services

VII. Section 260 – Gifts and Hospitality

VIII. Section 270 – Custody of Client Assets

IX. Section 280 – Objectivity-All Services

X. Section 290 – Independence-Assurance Engagements

According to the International Federation of Accountants (2006), the discussions

regarding client acceptance, engagement acceptance, and professional development

changes are explained in the Professional Appointment section. The Conflict of Interest

section explains where accountants shall identify circumstances where conflict of

interest may arise and pose threats. The Second Opinions section is the section that

illustrates situations where accountants are asked for a second opinion in the

application of auditing reports, accounting, and other threatening factors and principles
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that may hinder compliance with the fundamental principles. The Fees and Other Types

of Remunerations is the section that pertains to the rules in billing or charging in the

proper and appropriate amount for them to be completely executed without any

compromise with the quality and standards required. The Marketing Professional

Services section is the one referring to the proper way of advertising, accountants are

not allowed to tarnish the reputation of the profession and the image of their fellow

professionals in doing so. The Gifts and Hospitality section discusses the threats to

compliance with fundamental principles because of the presence of self-interest. The

Custody of Client Assets section is about the rules on holding a client’s assets since

doing so threatens compliance with the fundamental principles. Objectivity-all Services

section is about the rules in all kinds of services in accordance with objectivity and

independence in carrying out such service. Lastly, the independence-Assurance

Engagements talks about the independence of the accountant and the firm to a client. 

6. What provisions under the Code of Ethics are unique for professional

accountants in business?

These provisions are located in the Code of Ethics part C of the code starting

from section 300 to section 350. The content of each is as follows:

I. Section 300 - Introduction to the Code of Ethics for Professional Accountants in

Business and the Threats and Safeguards

II. Section 310 – Potential Conflicts

III. Section 320 – Preparation and Reporting Information

IV. Section 330 – Acting with Sufficient Expertise

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V. Section 340 - Financial Interest

VI. Section 350 – Inducements

According to the International Federation of Accountants (2006), the Potential

Conflicts section is about situations that may cause an accountant to act against what is

to be expected from him/her or be forced to act against his or her will. The preparation

and Reporting Information section pertains to the policies in making and maintaining

appropriate information for the clients. The Acting with sufficient Expertise section is all

about the responsibility of the accountant to only venture into businesses that may

benefit the firm and the accountants' experience and expertise. While the Financial

Interest section explains the threats of non-compliance with the principles because of

familiarity. Lastly, the inducements section is all about the actions when receiving offers

and/or making offers. 

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References:

Cabrera, E., & Cabrera, G. A. (2020). Principles of Auditing and Assurance Services
(2020th ed.). Gic Enterprises & Co., Inc.

International Federation of Accountants (2006). Code of Ethics for Professional

Accountant. https://www.ifac.org/system/files/publications/files/ifac-code-of-
ethics-for.pdf
University of West Florida (2017). The Importance of Ethics in Accounting.
https://getonline.uwf.edu/articles/business/ethics-in-
accounting.aspx#:~:text=Ethical%20codes%20are%20the%20fundamental,and
%20demonstrate%20honesty%20and%20fairness.&text=The%20following
%20are%20five%20areas,working%20in%20the%20accounting%20profession.