PUBLIC ACCOUNTING PROFESSION

1. 2. 3. 4. 5.

6. 7.

8.

Learning Objectives Understand public accounting as a profession. Enumerate and explain the different organizations that affect public accounting practice. Know how public accounting practice is regulated. Appreciate the need for a quality control system in an accounting firm. Know the quality control for firms that perform audits and reviews of historical financial information, and other assurance and related services engagements and quality control for audits of historical financial information. Enumerate and explain the services of a CPA in public practice. Identify the core competencies required in the public accounting profession and the emerging assurance and consultancy services of CPAs. Be familiar with the SEC Code of Corporate Governance.

Public Accounting Profession

A profession is distinguished by certain characteristics including: 1. Mastery of a particular intellectual skill, acquired by training and education; 2. Adherence by its members to a common code of values and conduct established by its administering body, including maintaining an outlook which is essentially objective; and 3. Acceptance of a duty to society as a whole (usually in return for restrictions in use of a title or in the granting of qualification).

CERTIFIED PUBLIC ACCOUNTANT

Is a person who, after obtaining the required education passes an extensive examination and is licensed by the country to practice as a professional accountant.

ORGANIZATIONS THAT AFFECT PUBLIC ACCOUNTING

A.

REGULATORY GOVERNMENT AGENCIES

Professional Regulation Commission (PRC) Administers, implements, and enforces the regulatory policies of the National Government with respect to the regulation and licensing of the various professions under its jurisdiction including the maintenance of professional standards and ethics and the enforcement of the rules and regulations relative thereto. Board of Accountancy (BOA) This licensing agency of the government is the only body that may issue and revoke CPA certificates and grant licenses to practice. Its functions are provided for in the Philippine Accountancy Act of 2004.
Securities and Exchange Commission (SEC) This is the government agency that regulates the registration and operations of corporations, partnership and other forms of associations in the Philippines. The overall objective of the SEC is to assist in providing investors with reliable information upon which to make investment decisions. The SEC has considerable influence in setting generally accepted accounting principles and disclosure requirements for financial statements as a result of its authority for specifying reporting requirements considered necessary for fair disclosure to investors. The SEC has power to establish rules for any CPA associated with audited financial statements submitted to the Commission.

1.

2.

3.

ORGANIZATIONS THAT AFFECT PUBLIC ACCOUNTING

4.

Commission on Audit (COA) This is the agency that audits or determines whether government units handle their funds according to existing laws and whether their programs are being conducted efficiently and economically. PROFESSIONAL ORGANIZATIONS Philippine Institute of Certified Public Accountants (PICPA) PICPA is the accredited national professional organization of CPAs. It serves all members in the different sectors of the accounting profession, namely, public practice, education, government and commerce and industry, through a set of technical and social services. Sectoral Organizations The other professional organizations that complement PICPAs objectives and provide the specific professional development and other requirements of CPAs in the different sectors: a. b. c. d. Association of CPAs in Public Practice (ACPAPP) Association of CPAs in Education (ACPAE) Association of CPAs in Commerce and Industry (ACPACI) Government Association of CPAs (GACPA)

B. 1.

2.

ORGANIZATIONS THAT AFFECT PUBLIC ACCOUNTING

C. 1.

STANDARD SETTING BODIES Financial Reporting Standards Council (FRSC) An accounting standard setting body which assists the Board in carrying out its powers and functions. The FRSC shall be composed of fifteen (15) members with a Chairman, who had been or presently a senior accounting practitioner in any of the scope of accounting practice and fourteen (14) representatives from the following: (a) Board of Accountancy 1 (b) Securities and Exchange Commission 1 Bangko Sentral ng Pilipinas 1 (d) Bureau of Internal Revenue 1 (e) A major organization composed of preparers and users financial statements 1 (f) Commission on Audit (g) Accredited National Professional Organization of CPAs Public Practice 2 Commerce and Industry 2 Academe/Education 2 Government 2 8 Total 14

ORGANIZATIONS THAT AFFECT PUBLIC ACCOUNTING

2.

Auditing and Assurance Standards Council (AASC) An auditing standard setting body which assist the Board in carrying out its powers and functions. The AASC shall be composed of fifteen (15) members with a Chairman, who had been or presently a senior practitioner in public accountancy and fourteen (14) representatives from the following: (a) Board of Accountancy (b) Securities and Exchange Commission Bangko Sentral ng Pilipinas (d) Commission on Audit (f) An association or organization of CPAs in active public practice of accountancy (g) Accredited National Professional Organization of CPAs Public Practice Commerce and Industry Academe/Education Government Total 6 1 1 1 1 1 1 1 1

9 14

ORGANIZATIONS THAT AFFECT PUBLIC ACCOUNTING

AUTHORITY ATTACHING TO PHILIPPINE STANDARDS ON AUDITING (PSAs), INTERPRETATIONS AND STATEMENTS

As set forth in the ASPCs Rules of Procedures, the PSAs and Interpretations issued by the Council apply whenever an independent examination of financial statements of any entity, whether profit-oriented or not, and irrespective of size or legal form, when such examination is conducted for purpose of expressing an opinion thereon. The PSAs and Interpretations may also have application, as appropriate, to other related activities of auditors. PSAs contain basic principles and essential procedures together with related guidance in the form of explanatory and other material. The basic principles and essential procedures are to be interpreted in the context of the explanatory and other material that provide guidance for their application. To understand and apply the basic principles and essential procedures together with the related guidance, it is necessary to consider the whole text of the PSA including explanatory and other material contained in the PSA . In exceptional circumstances, an auditor may judge it necessary to depart from a PSA in order to more effectively achieve the objective of the audit. When such situation arises, the auditor should be prepared to justify the departure. PSAs need only be applied to material matters. Any limitation of the applicability of a specific PSA is made clear in the introductory paragraphs to that PSA.

ORGANIZATIONS THAT AFFECT PUBLIC ACCOUNTING

From time to time, when deemed necessary, the ASPC will develop auditing interpretations covering implementation issues relating to final PSAs, or emerging issues relating to an existing PSA not considered when the PSA was issued. The Interpretations will have the same authority as the PSAs. PAPS are issued to provide practical assistance to auditors in implementing the PSAs or to promote good practice. These Statements are not intended to have the authority of the PSAs. The pronouncements of the AASC shall be in the form of: Philippine Standards of Quality Control (PSQCs) Philippine Standards on Auditing (PSAs) Philippine Standards on Review Engagements (PSREs) Philippine Standards on Assurance Engagements (PSAEs) Philippine Standards on Related Services (PSREs) Philippine Auditing Practice Statements (PAPSs) Philippine Review Engagement Practice Statements (PREPSs) Philippine Assurance Engagement Practice Statements (PAEPSs) Philippine Related Services Practice Statements (PRSPSs)

ORGANIZATIONS THAT AFFECT PUBLIC ACCOUNTING

3. International Federation of Accountants (IFAC) It is a non-profit, non-governmental, non-political international organization of accountancy bodies. It has as its mission the development and enhancement of the profession to enable it to provide services of consistently high quality in the public interest. Membership in IFAC is open to accountancy bodies recognized by law or general consensus within their countries as substantial national organizations of good standing within the accountancy profession. Membership in IFAC automatically includes membership in the International Accounting Standards Committee (IASC).
4.

International Accounting Standards Board (IASB) The Board is committed to developing, in the public interest, a single set of high quality, global accounting standards that require transparent and comparable information in general purpose financial statements. The Board cooperates with national accounting standard-setters to achieve convergence in accounting standards around the world.

5.

International Auditing Practices Committee (IAPC)

The International Auditing Practices Committee (IAPC) is a standing committee of the Council of IFAC and is responsible for the development and issuance on behalf of the Council, standards and statements on a variety of audit and attest functions in order to improve the degree of uniformity of auditing practices and related services throughout the world. IAPC issues the International Standards on Auditing (ISAs) that are to be applied in the audit of financial statements, audits of other information and related services.

REGULATION OF THE PUBLIC ACCOUNTING PRACTICE

EXPECTATION GAP has existed in some form since the inception of modern auditing. This is the gap which exists between what auditors attempt to do in an audit and the users expectation of the audit. Public regulations and regulations within the firm accomplish the following for the accounting profession:

Setting requirements to ensure that only qualified people are admitted to the accounting practice. Establishing GAAP and standards for accounting and auditing services. Adopting the Code of Ethics for Professional Accountants. Developing a program for quality control of public accounting practice. Requiring practicing accountants to attend continuing education programs on accounting principles and professional standards. Requiring regular, periodic reviews of auditors compliance with professional standards. Penalizing those found guilty of unacceptable practices. Monitoring adequate competition among CPAs.

PUBLIC REGULATION OF THE PROFESSION

The Board of Accountancy, Securities and Exchange Commission and the Courts of Justice are responsible for the public regulation of public accounting practice. The objective of public regulation is to protect the investing public from fraud, gross negligence, and failure to comply with the laws and regulations related to the independent audit of financial statements. Auditors found guilty of not complying with the minimum standards of performance established by law are subject to penalty, which generally takes one of the following forms: (1) payment of damages to those claiming injury (2) public censure (3) injunction (4) suspension or prohibition from practice before the SEC (5) temporary or permanent loss of license to practice. The program for regulation of the accounting profession is provided for in the Philippine Accountancy Act of 2004 and implemented by the Board of Accountancy. The SEC by virtue of its mandate also conducts inquiries and investigation on alleged audit failure. It conducts investigations in strict confidence and may include interviews with firm personnel, inquiry about the firms policies and procedures , and/or examination of working papers. It may also require that the firm have a special review of its quality control system, a review of engagement performed by personnel involved in the alleged problem audit, or a review of engagement in similar industries.

REPUBLIC ACT 9298 THE NEW ACCOUNTANCY LAW GOVERNING THE PRACTICE OF ACCOUNTANCY IN THE PHILIPPINES

AN ACT REGULATING THE PRACTICE OF ACCOUNTANCY IN THE PHILIPPINES, REPEALING FOR THE PURPSE PRESIDENTIAL DECREE NO. 692, OTHERWISE KNOWN AS THE REVISED ACCOUNTANCY LAW, APPROPRIATING FUNDS THEREFOR AND FOR OTHER PURPOSES

ARTICLE 1 TITLE, DECLARATION OF POLICY, OBJECTIVE AND SCOPE OF PRACTICE

SECTION 1. SHORT TITLE This act shall be known as the Philippine Accountancy Act of 2004 SECTION 2. DECLARATION OF POLICY - The State recognizes the importance of accountants in nation building and development. Hence, it shall develop and nurture competent, virtuous, productive and well rounded professional accountants whose standards of practice and service shall be excellent, qualitative, world class and globally competitive through inviolable, honest, effective, and credible licensure examinations and through regulatory measures, programs and activities that foster their professional growth and development. SECTION 3 OBJECTIVES This Act shall provide for and govern: (a) The standardization and regulation of accounting education; (b) The examination for registration of certified public accountants; and The supervision, control, and regulation of the practice of accountancy in the Philippines SECTION 4 SCOPE OF THE PRACTICE The practice of accountancy shall include, but not limited to, the following: (a) Practice of Public Accountancy shall constitute in a person, be it in his/her individual capacity, or as a staff member in an accounting or auditing firm, holding out himself/herself as one skilled in the knowledge, science and practice of accounting, and as a qualified person to render professional services as a certified public accountant; or offering or rendering, or both, to more than one client on a fee basis or otherwise, services such as the audit or verification of financial transaction and accounting records; or the preparation, signing, or certification for clients or reports of audit, balance sheet, and other financial, accounting and related schedules, exhibits, statements or reports which are to be used for publication or for credit purposes, or to be filed with a court or government agency, or to be used for any other purpose, or the design, installation, and revision of accounting system; or the preparation of income tax returns when related to accounting procedures; or when he/she represents clients before government agencies on tax and other matters related to accounting or renders professional assistance in matters relating to accounting procedures and the recording and presentation of financial facts or data.

ARTICLE 1 SECTION 4 SCOPE OF PRACTICE

(b) Practice in Commerce and Industry shall constitute in a person involved in decision making requiring professional

knowledge in the science of accounting, or when such employment or position requires that the holder thereof must be a certified public accountant.
(c) Practice in Education/Academe shall constitute in a person in an educational institution which involve teaching of

accounting, auditing, management advisory services, finance, business law, taxation, and other technically related subjects : Provided, that members of the Integrated Bar of the Philippines may be allowed to teach business law and taxation subjects.
(d) Practice in Government - shall constitute in a person who holds, or is appointed to, a position in the accounting

professional group in government or in a government-owned, and/or controlled corporation, including those performing proprietary functions, where decision making requires professional knowledge in the science of accounting, or where a civil service eligibility as a certified public accountant is a prerequisite.

ARTICLE II - PROFESSIONAL REGULATORY BOARD OF ACCOUNTANCY

SECTION 5 THE PROFESSIONAL REGULATORY BOARD OF ACCOUNTANCY AND ITS COMPOSITION The Professional Regulatory Board of Accountancy, hereinafter referred to as the Board, under the supervision and administrative control of the Professional Regulation Commission, hereinafter referred to as the Commission, shall be composed of a chairman and six (6) members to be appointed by the President of the Philippines from a list of three (3) recommendees for each position and ranked by the Commission, from a list of five (5) nominees for each position submitted by the accredited professional organization of certified public accountants. The Board shall elect a vice-chairman from among its members for a term of one (1) year. The chairman shall preside in all meetings of the Board in the event of a vacancy in the office of the chairman, the vice-chairman shall assume such duties and responsibilities until such time as a chairman is appointed. SECTION 6 QUALIFICATIONS OF MEMBERS OF THE PROFESSIONAL REGULATORY BOARD A member of the Board shall, at the time of his/her appointment, possess the following qualifications: (a) Must be a natural born citizen and a resident of the Philippines; (b) Must be a registered Certified Public Accountant with at least ten (10) years of work experience in any scope of the practice of accountancy; Must be of good moral character and must not have been convicted of crimes involving moral turpitude; and (d) Must not have any pecuniary interest, directly or indirectly, in any school, college, university or institution conferring an academic degree necessary for admission to the practice of accountancy or where review classes in preparation for the licensure examination are being offered or conducted, nor shall he/she be a member of the faculty or administration thereof at the time of his/her appointment to the Board.

ARTICLE II - PROFESSIONAL REGULATORY BOARD OF ACCOUNTANCY

Section 7 Term of Office - the chairman and members of the Board shall hold office for a term of three (3) years. Any vacancy occurring within the term of a member shall be filled up for the unexpired portion of the term only. No person who has served two (2) successive complete terms shall be eligible for reappointment until the lapse of one (1) year. Appointment to fill up an unexpired term is not to be considered as a complete term. Section 8 Compensation and Allowances of the Board The chairman and members of the Board shall receive compensation and allowances comparable to that being received by the chairman and members of existing regulatory boards under the Commission as provided for in the General Appropriations Act. Section 9 Powers and Functions of the Board - The Board shall exercise the following specific powers, functions and responsibilities: (a) To prescribe and adopt the rules and regulations necessary for carrying out the provisions of this Act; (b) To supervise the registration, licensure and practice of accountancy in the Philippines; (c) To administer oaths in connection with the administration of this Act; (d) To issue, suspend, revoke, or reinstate the Certificate of Registration for the practice of the accountancy profession; (e) To adopt an official seal of the Board; (f) To prescribe and/or adopt a Code of Ethics for the practice of accountancy; (g) To monitor the conditions affecting the practice of accountancy and adopt such measures, including promulgation of accounting and auditing standards, rules and regulations and best practices as may be deemed proper for the enhancement and maintenance of high professional, ethical, accounting and auditing standards; Provided, That domestic accounting and auditing standards, rules and regulations shall include the international accounting and auditing standards, and generally accepted best practices;

ARTICLE II PROFESSIONAL REGULATORY BOARD OF ACCOUNTANCY

Section 9 (h) To conduct an oversight into the quality of audits of financial statements through a review of the quality control measures instituted by auditors in order to ensure compliance with accounting and auditing standards and practices; (i) To investigate violations of this act and the rules and regulations as promulgated hereunder and for this purpose, to issue summons, subpoena and subpoena ad testifacandum and subpoena duces tecum to violators or witness thereof and compel their attendance to such investigation or hearings and the production of documents in connection therewith: Provided, that the Board upon approval of the Commission may, subject to such rules and regulations that may be promulgated to implement this section, delegate the fact-finding aspect of such investigations to the accredited professional organization of accountants: Provided, further, That the Board and/or the Commission may adopt their findings of fact as it may seem fit; (j) The Board may motu propio in its discretion, make such investigations as it deems necessary to determine whether any person has violated any provisions of this law, any accounting or auditing standard or rules duly promulgated by the Board as part of the rules governing the practice of accountancy; (k) To issue a cease and desist order to any person, association, partnership or corporation engaged in violation of any provision of this Act, any accounting or auditing standards or rules duly promulgated by the Board as part of the rules governing the practice of accountancy in the Philippines; (l) To punish for contempt of the Board, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court; (m) To prepare, adopt, issue or amend the syllabi of the subjects for examinations in consultation with the academe, determine and prepare questions for the licensure examination which shall strictly be within the scope of the syllabi of the subjects for examinations as well as administer, correct and release the results of the licensure examinations;

ARTICLE II - PROFESSIONAL REGULATORY BOARD OF ACCOUNTANCY

Section 9 (n) To ensure, in coordination with the Commission on Higher Education (CHED) or other authorized government offices that all higher educational instruction and offering of accountancy comply with the policies, standards and requirements of the course prescribed by CHED or other authorized government offices in the areas of curriculum, faculty, library and facilities; and (o) To exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted to the Board to achieve the objectives and purposes of this Act.

The policies, resolution, rules and regulations, issued or promulgated by the Board shall be subject to review and approval of the Commission. However, the Boards decisions, resolutions or orders rendered in administrative cases shall be subject to review only if on appeal.
Section 10 Administrative Supervisions of the Board, Custodian of its Records, Secretariat and Support Services - The Board shall be under the administrative supervision of the Commission. All records of the Board, including applications for examination and administrative and other investigative cases conducted by the Board shall be under the custody of the Commission. The Commission shall designate the secretary of the Board and shall provide the secretariat and other support services to implement the provisions of this Act.

ARTICLE II - PROFESSIONAL REGULATORY BOARD OF ACCOUNTANCY

Section 11 Grounds for Suspension or Removal of Members of the Board The President of the Philippines, upon the recommendation of the Commission, after giving the concerned member an opportunity to defend himself in a proper administrative investigation to be conducted by the Commission, may suspend or remove any member on the following grounds: (a) Neglect of duty or incompetence; (b) Violation or tolerance of any violation of this Act, and its implementing rules and regulations or the Certified Public Accountants code of Ethics and the technical and professional standards of practice for certified public accountants; Final judgment of crimes involving moral turpitude; and (d) Manipulation or rigging of the certified public accountants licensure examination results, disclosure of secret and confidential information in the examination questions prior to the conduct of the said examination or tampering of grades. Section 12 Annual Report The Board shall, at the close of each calendar year, submit an annual report to the President of the Philippines through the Commission giving a detailed account of its proceedings and accomplishments during the year and making recommendations for the adoption of measures that will upgrade and improve the conditions affecting the practice of accountancy in the Philippines.

ARTICLE III EXAMINATION, REGISTRATION AND LICENSURE

Section 13 The Certified Public Accountant Examinations All applicants for registration for the practice of accountancy shall be required to undergo a licensure examination to be given by the Board in such places and dates as the Commission may designate subject to compliance with the requirements prescribed by the Commission in accordance with Republic Act 8981. Section 14 Qualifications of Applicants for Examinations - Any person applying for examination shall establish the following requisites to the satisfaction of the Board that he/she: (a) is a Filipino citizen; (b) is of good moral character; is a holder of the degree of Bachelor of Science in Accountancy conferred by a school, college, academy or institute duly recognized and/or accredited by the CHED or other authorized government offices; and (d) has not been convicted of any criminal offense involving moral turpitude. Section 15 Scope of Examination - The licensure examination for certified public accountants shall cover, but are not limited to, the following subjects: (a) Theory of Accounts (b) Business Law and Taxation Management Services (d) Auditing Theory (e) Auditing Problems (f) Practical Accounting Problems I (g) Practical Accounting Problems II

ARTICLE III EXAMINATION, REGISTRATION AND LICENSURE

Section 15 Scope of Examination The Board, subject to the approval of the Commission, may revise or exclude any of the subjects and their syllabi, and add new ones as the need arises. Section 16 Rating in the Licensure Examination To be qualified as having passed the licensure examination for accountants, a candidate must obtain a general weighted average of seventy-five percent (75%), with no grades lower than sixty-five percent in any given subject. In the event a candidate obtains the rating of seventy-five percent (75%) and above in at least majority of the subjects as provided for in this Act, he/she shall receive a conditional credit for the subjects passed: Provided, That a candidate shall take an examination in the remaining subjects within two (2) years from the preceding examination. Provided, further, That if the candidate fails to obtain at least a general average of seventy-five percent (75%) and a rating of at least sixty-five percent (65%) in each of the subjects reexamined, he/she shall be considered as failed in the entire examination. Section 17 Report of Ratings The Board shall submit to the Commission the ratings obtained by each candidate within ten (10) calendar days after the examination, unless extended for just cause. Upon the release of the results of the examination, the Board shall send by mailing the rating received by each examinee at his/her given address using the mailing envelope submitted during the examination. Section 18 Failing Candidates to take Refresher Course - Any candidate who fails in two (2) complete Certified Public Accountant Board Examination shall be disqualified from taking another set of examinations unless he/she submits evidence to the satisfaction of the Board that he/she enrolled in and completed at least twenty-four (24) units in subject given in the licensure examination. For purposes of this act, the examination in which the candidate was conditioned together with the removal examination on the subject in which he/she failed shall counted as one complete examination.

ARTICLE III - EXAMINATION, REGISTRATION AND LICENSURE

Section 19 Oath - All successful candidates in the examination shall be required to take an oath of profession before any member of the Board or before any government official authorized by the Commission or any person authorized by law to administer oaths upon presentation of proof of his/her qualification, prior to entering upon the practice of the profession. Section 20 Issuance of Certificates of Registration and Professional Identification Card - A certificate of registration shall be issued to examinees who pass the licensure examination subject to payment of fees prescribed by the Commission. The Certificate of Registration shall bear the signature of the chairperson of the Commission and the chairman and members of the Board, indicating that the person named therein is entitled to the practice of the profession with all the privileges appurtenant thereto. The said certificate shall remain in full force and effect until withdrawn, suspended or revoked in accordance with this Act. A Professional Identification Card bearing the registration number, date of issuance, expiry date, duly signed by the chairperson of the Commission, shall likewise be issued to every registrant renewable every three (3) years. Section 21 Roster of Certified Public Accountants A roster showing the names and place of business of all registered certified public accountants shall be prepared and updated by the Board, and copies thereof shall be made available to any party as may be deemed necessary. Section 22 Indication of Certificate of Registration, Identification Card and Professional Tax Receipt The certified public accountant shall be required to indicate his/her certificate of registration number and date of issuance, the duration of validity, including the Professional Tax Receipt number on the documents he/she signs, uses or issues in connection with the practice of his/her profession.

ARTICLE III - EXAMINATION, REGISTRATION AND LICENSURE

Section 23 Refusal to Issue Certificate of Registration and Professional Identification Card The Board shall not register and issue a certificate of registration and professional identification card to any successful examinee convicted by a court of competent jurisdiction of a criminal offense involving moral turpitude or guilty of immoral and dishonorable conduct or to any person of unsound mind. In the event of refusal to issue certificate for any reason, the Board shall give the applicant a written statement setting forth the reasons for such action, which statement shall be incorporated in the record of the Board. Section 24 Suspension and Revocation of Certificates of Registration and Professional Identification Card and Cancellation of Special Permit - The Board shall have the power, upon due notice and hearing, to suspend or revoke the practitioners certificate of registration and professional identification card or suspend him/her from the practice of his/her profession or cancel his/her special permit for any of the causes or grounds mentioned under Section 23 of this Act or for any unprofessional or unethical conduct, malpractice, violation of any of the provisions of this Act, and its implementing rules and regulations, and the Certified Public Accountants Code of Ethics and the technical and professional standards of practice for certified public accountants. Section 25 Reinstatement, Reissuance, and Replacement of Revoked of Lost Certificates - The Board may, after the expiration of two (2) years from the date of revocation of a certificate of registration and upon application and for reasons deemed proper and sufficient, reinstate the validity of a revoked certificate of registration and in so doing, may, in its discretion, exempt the applicant from taking another examination. A new certificate of registration to replace lost, destroyed, or mutilated certificate/license may be issued, subject to the rules promulgated by the Board and the Commission, upon payment of the required fees.

ARTICLE IV - PRACTICE OF ACCOUNTANCY

SECTION 26 PROHIBITION IN THE PRACTICE OF ACCOUNTANCY - No person shall practice accountancy in this country, or use the title Certified Public Accountant, or use the abbreviated title CPA or display or use any title, sign, card, advertisement, or other device to indicate that such person practices or offers to practice accountancy, or is a certified public accountant, unless such person shall have received from the Board a certificate of registration/professional license and be issued a professional identification card or a valid temporary/special permit duly issued to him/her by the Board and the Commission. SECTION 27 VESTED RIGHTS: CERTIFIED PUBLIC ACCOUNTANTS REGISTERED WHEN THE LAW IS PASSED All certified public accountants registered at the time this law takes effect shall automatically be registered under the provisions hereof, subject however, to the provisions herein set forth as to future requirements. Certificates of registration/professional license held by such persons in good standing shall have the same force and effect as though issued after the passage of this Act. SECTION 28 LIMITATION OF THE PRACTICE OF PUBLIC ACCOUNTANCY - Single practitioners and partnerships for. the practice of public accountancy shall be registered certified public accountants in the Philippines: Provided, That from the effectivity of this Act, a certificate of accreditation shall be issued to certified public accountants in public practice only upon showing, in accordance with rules and regulations promulgated by the Board and approved by the Commission, that such registrant has acquired a minimum of three (3) years meaningful experience in any of the areas of public practice including taxation: Provided, further, That this requirement shall not apply to those already granted a certificate of accreditation prior to the effectivity of this Act. The Securities and Exchange Commission shall not register any corporation organized for the practice of public accountancy

ARTICLE IV - PRACTICE OF ACCOUNTANCY

SECTION 29 OWNERSHIP OF WORKING PAPERS All working papers, schedules and memoranda made by a certified public accountant and his staff in the course of the examination, including those prepared and submitted by the client, incident to or in the course of an examination, by such certified public accountant, except reports submitted by a certified public accountant to a client shall be treated confidential and privileged and remain the property of such certified public accountant in the absence of a written agreement between the certified public accountant and the client, to the contrary, unless such documents are required to be produced through subpoena issued by any court, tribunal, or government regulatory or administrative body. SECTION 30 ACCREDITED PROFESSIONAL ORGANIZATION - All registered certified public accountants whose names appear in the roster of certified public accountants shall be united and integrated through their membership in a one and only registered and accredited national professional organization of registered and licensed certified public accountants, which shall be registered with the Securities and Exchange Commission as a nonprofit corporation and recognized by the Board subject to the approval of the Commission. The members in the said integrated and accredited national professional organization shall receive benefits and privileges appurtenant thereto upon payment of required fees and dues. Membership in the integrated organization shall not be a bar to membership in any other association of certified public accountants. SECTION 31 ACCREDITATION TO PRACTICE PUBLIC ACCOUNTANCY Certified public accountants, firms and partnerships of certified public accountants, engaged in the practice of public accountancy, including partners and staff members thereof, shall register with the Commission and the Board, such registration to be renewed every three (3) years: Provided, That subject to the approval of the Commission, the Board shall promulgate rules and regulations for the implementation of registration requirements including the fees and penalties for violation thereof.

ARTICLE IV PRACTICE OF ACCOUNTANCY

SECTION 32. CONTINUING PROFESSIONAL EDUCATION (CPE ) PROGRAM All certified public accountants shall abide by the requirements, rules and regulations on continuing professional education to be promulgated by the Board, subject to the approval of the Commission, in coordination with the accredited national professional organization of certified public accountants or any duly accredited education institutions. For this purpose, a CPE Council is hereby created to implement the CPE Program. SECTION 33 SEAL AND USE OF SEAL All licensed certified public accountants shall obtain and use a seal of a design prescribed by the Board bearing the registrants name, registration number and title. The auditors reports shall be stamped with said seal, indicating therein his/her current Professional Tax Receipt (PTR) number, date/place of payment when filed with government authorities or when used professionally. SECTION 34 FOREIGN RECIPROCITY Subjects or citizens of foreign countries may be allowed to practice accountancy in the Philippines in accordance with the provisions of existing laws, international treaty obligations including mutual recognition agreements entered into by the Philippine government with other countries. A person who is not a citizen of the Philippines shall not be allowed to practice accountancy in the Philippines unless he/she can prove, in the manner provided by the Rules of Court that, by specific provision of law, the country of which/he/she is a citizen, subject or national admits citizens of the Philippines to the practice of the same profession without restriction. SECTION 35 COVERAGE OF TEMPORATY/SPECIAL PERMITS Special/temporary permit may be issued by the Board subject to the approval of the Commission and payment of the fees the latter has prescribed and charged thereof to the following persons:

ARTICLE IV PRACTICE OF ACCOUNTANCY

SECTION 35 (a) A foreign certified public accountant called for consultation or for a specific purpose which, in the judgment of the Board, is essential for the development of the country: Provided, That his/her practice shall be limited only for the particular work that he/she is being engaged. Provided, further, That there is no Filipino certified public accountant qualified for such consultation or specific purposes. (b) A foreign certified public accountant engaged as professor, lecturer or critic in fields essential to accountancy education in the Philippines and his/her engagement is confined to teaching only; and

A foreign certified public accountant who is an internationally recognized expert or with specialization in any branch of accountancy and his/her services is essential for the advancement of accountancy in the Philippines.

ARTICLE V PENAL AND FINAL PROVISIONS

SECTION 36 PENAL PROVISION Any person who shall violate any of the provisions of this Act or any of its implementing rules and regulations as promulgated by the Board subject to the approval of the Commission, shall, upon conviction, be punished by a fine of not less than Fifty thousand pesos (P 50,000.00) or by imprisonment for a period not exceeding two (2) years or both. SECTION 37 IMPLEMENTING RULES AND REGULATIONS Within ninety (90) days after the effectivity of this Act, the Board, subject to the approval of the Commission and in coordination with the accredited national professional organization of certified public accountants, shall adopt and promulgate such rules and regulations to carry out the provisions of this Act and which shall be effective fifteen (15) days following their publication in the Official Gazette or in any major daily newspaper of general circulation. SECTION 38 INTERPRETATION OF THIS ACT Nothing in this Act shall be construed to effect or prevent the practice of any other legally recognized profession. SECTION 39 ENFORCEMENT OF THE ACT It shall be the primary duty of the Commission and the Board to effectively enforce the provisions of this Act. All duly constituted law enforcement agencies and officers of national, provincial, city or municipal government or of any political subdivision thereof, shall, upon the call or request of the Commission or the Board, render assistance in enforcing the provisions of this Act and to prosecute any person violating the provisions of the same. The Secretary of Justice or his duly designated representative shall act as the legal adviser to the Commission and the Board and shall render legal assistance as may be necessary in carrying out the provisions of this Act. Any person may bring before the Commission, Board or the aforementioned officers of the law, cases of illegal practice or violations of this Act committed by any person or party. The Board shall assist the Commission in filing the appropriate charges through the concerned prosecution office in accordance with law and Rules of Court.

ARTICLE V PENAL AND FINAL PROVISIONS

SECTION 40 FUNDING PROVISIONS The chairperson of the Professional Regulation Commission shall immediately include in the Commissions programs the implementation of this Act, the funding of which shall be included in the Annual General Appropriations Act. SECTION 41 TRANSITORY PROVISION The incumbent chairman and members of the Board shall continue to serve in their respective positions under the terms for which they have been appointed under Presidential Decree No. 692, without the need for new appointments. All graduates with a Bachelors Degree, major in Accounting shall be allowed to take the CPA Licensure Examination within two (2) years from the effectivity of this Act under the rules and regulations to be promulgated by the Board subject to the approval by the Commission. SECTION 42 SEPARABILITY CLAUSE If any clause, provision, paragraph or part thereof shall be declared unconstitutional or invalid, such judgment shall not affect, invalidate or impair any other part hereof, but shall be merely confined to the clause, provision, paragraph or part directly involved in the controversy in which such judgment has been rendered. SECTION 43 REPEALING CLAUSE Presidential Decree No. 692 is hereby repealed and all other laws, orders, rules and regulations or resolutions or part/s thereof inconsistent with the provisions of this Act are hereby repealed or modified accordingly. SECTION 44 EFFECTIVITY This Act take effect after fifteen (15) days following its publication in the Official Gazette or in any major daily newspaper of general circulation.

REGULATION WITHIN THE FIRM

A. QUALITY CONTROL FOR FIRMS THAT PERFORM AUDITS AND REVIEWS

OF HISTORICAL FINANCIAL INFORMATION, AND OTHER ASSURANCE AND RELATED SERVICES ENGAGEMENT (Philippine Standards on Quality Control (PSQC) 1 Establishes the basic principles and essential procedures and to provide guidance
regarding a firms responsibilities for its system of quality control for audits and reviews of historical financial information, and for other assurance and related services engagements. A system of quality control consists of policies designed to achieve the objectives set out and the procedures necessary to implement and monitor compliance with those policies. The firm should establish a system of quality control designed to provide it with reasonable assurance that the firm and its personnel comply with professional standards and regulatory and legal requirements, and that reports issued by the firm or engagement partners are appropriate in the circumstances. Regulation within the firm is generally the most effective form of regulation because problems can be dealt with immediately and authoritatively at the level which they occur. A QUALITY CONTROL SYSTEM is a set of policies and procedures designed to provide reasonable assurance that the public accounting firm complies with professional standards. The nature and extent of a particular firms quality control policies and procedures depend on such factors as: (1) its size and nature of policies; (2) degree of operating autonomy allowed to its personnel; (3) that nature of its practice; (4) its organization; (5) its geographic dispersion; and (6) appropriate cost/benefit consideration.

REGULATION WITHIN THE FIRM

ELEMENTS OF A SYSTEM OF QUALITY CONTROL

The firms system of quality control should include policies and procedures addressing each of the following elements : (a) Leadership responsibilities for quality within the firm (b) Ethical requirements Acceptance and continuance of client relationships and specific requirements (d) Human resources (e) Engagement performance (f) Monitoring The quality control policies and procedures should be documented and communicated to the firms personnel. LEADERSHIP RESPONSIBILITIES FOR QUALITY WITHIN THE FIRM The firm should establish policies and procedures designed to promote an internal culture based on the recognition that quality is essential in performing engagements. Such policies and procedures should require the firms chief executive officer (or equivalent) or, if appropriate, the firms managing board of partners (or equivalent), to assume ultimate responsibility for the firms system of quality control. Any person or persons assigned operational responsibility for the firms quality control system by the firms chief executive officer or managing board of partners should have sufficient and appropriate experience and ability, and the necessary authority, to assume that responsibility.

REGULATION WITHIN THE FIRM

Ethical Requirements
The firm should establish policies and procedures designed to provide it with reasonable assurance that the firm and its personnel comply with relevant ethical requirements. Ethical requirements relating to audits and reviews of historical financial information, and other assurance and related services engagements . The Philippine Code establishes the fundamental principles of professional ethics, which include: (a) Integrity (b) Objectivity Professional competence and due care (d) Confidentiality (e) Professional behavior

REGULATION WITHIN THE FIRM

INDEPENDENCE The firm should establish policies and procedures designed to provide it with reasonable assurance that the firm, its personnel and, where applicable, others subject to independence requirements (including experts contracted by the firm and network firm personnel), maintain independence where required by the Philippine Code. Such policies and procedures should enable the firm to: (a) Communicate its independence requirements to its personnel and, where applicable, others subject to them; and (b) Identify and evaluate circumstances and relationships that create threats to independence, and to take appropriate action to eliminate those threats or reduce them to an acceptable level by applying safeguards, or, if considered appropriate, to withdraw from the engagement. Such policies and procedures should require: (a) Engagement partners to provide the firm with relevant information about client engagements, including the scope of services, to enable the firm to evaluate the overall impact, if any, on independence requirements; (b) Personnel to promptly notify the firm of circumstances and relationships that create a threat to independence so that appropriate action can be taken; and The accumulation and communication of relevant information to appropriate personnel so that: (i) The firm and its personnel can readily determine whether they satisfy independence requirements; (ii) The firm can maintain and update its records relating to independence; and (iii) The firm can take appropriate action regarding identified threats to independence,

REGULATION WITHIN THE FIRM

INDEPENDENCE
The firm should establish policies and procedures designed to provide it with reasonable assurance that it is notified of breaches of independence requirements, and to enable it to take appropriate actions to resolve such situations. The policies and procedures should include requirements for: (a) All who are subject to independence requirements to promptly notify the firm of independence breaches of which they become aware; (b) The firm to promptly communicate identified breaches of these policies and procedures to: (i) The engagement partner who, with the firm, needs to address the breach; and (ii) Other relevant personnel in the firm and those subject to the independence requirements who need to take appropriate action; and Prompt communication to the firm, if necessary, by the engagement partner and the other individuals of the actions taken to resolve the matter, so that the firm can determine whether it should take further action. At least annually, the firm should obtain a written confirmation of compliance with its policies and procedures on independence from all firm personnel required to be independent by the Philippine Code.

REGULATION WITHIN THE FIRM

INDEPENDENCE
The Philippine Code discusses the familiarity threat that maybe created by using the same senior personnel on an assurance engagement over a long period of time and the safeguards that might be appropriate to address such a threat. Accordingly, the firm should establish policies and procedures: (a) Setting out criteria for determining the need for safeguards to reduce the familiarity threat to an acceptable level when using the same senior personnel on an assurance engagement over a long period of time; and (b) For all audits of financial statements of listed entities, requiring the rotation of the engagement partner after a specified period in compliance with the Philippine Code.

REGULATON WITHIN THE FIRM

ACCEPTANCE AND CONTINUANCE OF CLIENT RELATIONSHIPS AND SPECIFIC ENGAGEMENTS The firm should establish policies and procedures for the acceptance and continuance of client relationship and specific engagements, designed to provide it with reasonable assurance that it will only undertake or continue to relationships and engagements where it: (a) Has considered the integrity of the client and does not have information that would lead it to conclude that the client lacks integrity; (b) Is competent to perform the engagement and has the capabilities, time and resources to do so; and Can comply with ethical requirements. The firm should obtain such information as it considers necessary in the circumstances before accepting an engagement with a new client, when deciding whether to continue an existing engagement, and when considering acceptance of a new engagement with an existing client. Where issues have been identified, and the firm decides to accept or continue the client relationship or a specific engagement, it should document how the issues were resolved. When the firm obtains information that would have caused it to decline an engagement if that information had been available earlier, policies and procedures on the continuance of the engagement and the client relationship should include consideration of:

(a) The professional and legal responsibilities that apply to the circumstances, including whether there is a requirement for the firm to report to the person or persons who made the appointment or, in some cases, to regulatory authorities; and
(b) The possibility of withdrawing from the engagement or from both the engagement and the client relationship.

REGULATION WITHIN THE FIRM

HUMAN RESOURCES
The firm should establish policies and procedures designed to provide it with reasonable assurance that it has sufficient personnel with the capabilities, competence, and commitment to ethical principles necessary to perform its engagements in accordance with professional standards and regulatory and legal requirements, and to enable the firm or engagement partners to issue reports that are appropriate in the circumstances.
Such policies and procedures address the following personnel issues Recruitment Performance evaluation Capabilities Competence Career development Promotion Compensation; and The estimation of personnel needs Capabilities and competence are developed through a variety of methods, including the following:

Professional education Continuing professional development, including training Work experience Coaching by more experienced staff, for example, other members of the engagement team

REGULATION WITHIN THE FIRM

ASSIGNMENT OF ENGAGEMENT TEAMS

The firm should assign responsibility for each engagement to an engagement partner. The firm should establish policies and procedures requiring that: (a) The identity and role of the engagement partner are communicated to key members of client management and those charged with governance; (b) The engagement partner has the appropriate capabilities, competence, authority and time to perform the role; and The responsibilities of the engagement partner are clearly defined and communicated to that partner. The firm should also assign appropriate staff with the necessary capabilities, competence and time to perform engagements in accordance with professional standards and regulatory and legal requirements, and to enable the firm or engagement partners to issue reports that are appropriate in the circumstances.

REGULATION WITHIN THE FIRM

ENGAGEMENT PERFORMANCE
The firm should establish policies and procedures designed to provide it with reasonable assurance that engagements are performed in accordance with professional standards and regulatory and legal requirements, and that the firm or the engagement partner issue reports that are appropriate in the circumstances.
CONSULTATION The firm should establish policies and procedures designed to provide it with reasonable assurance that: (a) Appropriate consultation takes place on difficult or contentious matters; (b) Sufficient resources are available to enable appropriate consultation to take place; The nature and scope of such consultations are documented; and (d) Conclusions resulting from consultations are documented and implemented DIFFERENCES OF OPINION The firm should establish policies and procedures for dealing with and resolving differences of opinion within the engagement team, with those consulted and, where applicable, between the engagement partner and the engagement quality control reviewer. Conclusions reached should be documented and implemented. (THE REPORT SHOULD NOT BE ISSUED UNTIL THE MATTER IS RESOLVED).

REGULATION WITHIN THE FIRM

ENGAGEMENT PERFORMANCE
ENGAGEMENT QUALITY CONTROL REVIEW The firm should establish policies and procedures requiring, for appropriate engagements, an engagement quality control review that provides an objective evaluation of the significant judgments made by the engagement team and the conclusions reached in formulating the report. Such policies and procedures should:

(a) Require an engagement quality control review for all audits of financial statements of listed entities; (b)Set out criteria against which all other audits and reviews of historical financial information, and other assurance and related services engagements should be evaluated to determine whether an engagement quality control review should be performed; and Require an engagement quality control review for all engagements .
The firms policies and procedures should require the completion of the engagement quality control review before the report is issued.

REGULATION WITHIN THE FIRM

ENGAGEMENT PERFORMANCE ENGAGEMENT QUALITY CONTROL REVIEW NATURE, TIMING AND EXTENT OF THE ENGAGEMENT QUALITY CONTROL REVIEW An engagement quality control review ordinarily involves discussion with the engagement partner, a review of the financial statements or other subject matter information and the report, and, in particular, consideration of whether the report is appropriate. It also involves a review of selected working papers relating to the significant judgments the engagement team made and the conclusions they reached. The extent of the review depends on the complexity of the engagement and the risk that the report might not be appropriate in the circumstances. The review does not reduce the responsibilities of the engagement partner. CRITERIA FOR THE ELIGIBILITY OF ENGAGEMENT QUALITY CONTROL REVIEWERS The firms policies and procedures should address the appointment of engagement quality control reviewers and establish their eligibility through: (a) The technical qualifications required to perform the role, including the necessary experience and authority; and (b) The degree to which an engagement quality control reviewer can be consulted on the engagement without compromising the reviewers objectivity.

REGULATION WITHIN THE FIRM

ENGAGEMENT PERFORMANCE
ENGAGEMENT QUALITY CONTROL REVIEW DOCUMENTATION OF THE ENGAGEMENT QUALITY CONTROL REVIEW Policies and procedures on documentation of the engagement quality control review should require documentation that: (a) The procedures required by the firms policies on engagement quality control review have been performed; (b) The engagement quality control review has been completed before the report is issued; and The reviewer is not aware of any unresolved matters that would cause the reviewer to believe that the significant judgments the engagement team made and the conclusions they reached were not appropriate.

REGULATION WITHIN THE FIRM

MONITORING
The firm should establish policies and procedures designed to provide it with reasonable assurance that the policies and procedures relating to the system of quality control are relevant, adequate, operating effectively and complied with in practice. Such policies and procedures should include an ongoing consideration and evaluation of the firms system of quality control, including a periodic inspection of a selection of completed engagements. The firm should evaluate the effect of deficiencies noted as a result of the monitoring process and should determine whether they are either: (a) Instances that do not necessarily indicate that the firms system of quality control is insufficient to provide it with reasonable assurance that it complies with professional standards and regulatory and legal requirements, and that the reports issued by the firm or engagement partners are appropriate in the circumstance; or (b) Systemic, repetitive or other significant deficiencies that require prompt corrective action. The firm should communicate to relevant engagement partners and other appropriate personnel deficiencies noted as a result of the monitoring process and recommendations for appropriate remedial action.

REGULATION WITHIN THE FIRM

MONITORING
The firms evaluation of each type of deficiency should result in recommendations for one or more of the following: (a) Taking appropriate remedial action in relation to an individual engagement or member of personnel; (b) The communication of the findings to those responsible for training and professional development; Changes to the quality control policies and procedures; and (d) Disciplinary action against those who fail to comply with the policies and procedures of the firm, especially those who do so repeatedly. Where the results of the monitoring procedures indicate that a report may be inappropriate or that procedures were omitted during the performance of the engagement, the firm should determine what further action is appropriate to comply with relevant professional standards and regulatory and legal requirements. It should also consider obtaining legal advice. At least annually, the firm should communicate the results of the monitoring of its quality control system to engagement partners and other appropriate individuals within the firm, including the firms chief executive officer or, if appropriate, its managing board of partners. Such communication should enable the firm and these individuals to take prompt and appropriate action where necessary in accordance with their defined roles and responsibilities. Information communicated should include the following: (a) A description of the monitoring procedures performed. (b) The conclusion drawn from the monitoring procedures. Where relevant, a description of systemic, repetitive or other significant deficiencies and of the actions taken to resolve or amend those deficiencies.

REGULATION WITHIN THE FIRM

MONITORING
COMPLAINTS AND ALLEGATIONS The firm should establish policies and procedures designed to provide it with reasonable assurance that it deals appropriately with: (a) Complaints and allegations that the work performed by the firm fails to comply with professional standards and regulatory and legal requirements; and (b) Allegations of non-compliance with the firms system of quality control. DOCUMENTATION The firm should establish policies and procedures requiring appropriate documentation to provide evidence of the operation of each element of its system of quality control.