A professional accountant in public practice

shall not knowingly engage in any business,

occupation, or activity that impairs or might
impair integrity, objectivity or the good
reputation of the profession and as a result
would be incompatible with the fundamental
principles.

 Self-interest
 Self-review
 Familiarity
 Advocacy
 Intimidation.

Safeguards that may eliminate or reduce

threats to an acceptable level fall into two
broad categories:

 Safeguards created by the

profession, legislation or regulation;
and
 Safeguards in the work environment.

Client Acceptance- Before accepting a new

client relationship, a professional accountant
in public practice shall determine whether
acceptance would create any threats to
compliance with the fundamental principles.

A professional accountant in public practice

shall evaluate the significance of any threats
and apply safeguards when necessary to
eliminate them or reduce them to an
acceptable level.

Professional accountants in business may be

solely or jointly responsible for the
preparation and reporting of financial and
other information. They may also be
responsible for providing effective financial
management and competent advice on a
variety of business-related matters.

A professional accountant in business may

hold a senior position within an organization.

A professional accountant in business shall

not knowingly engage in any business,
occupation, or activity that impairs or might
impair integrity, objectivity or the good
reputation of the profession and as a result
would be incompatible with the fundamental
principles.
  be well-informed about the
company and the external
environment in which it operates
 have a strong command of issues
relevant to the business
 insist on a comprehensive, formal
and tailored induction, continually
develop and refresh their
knowledge and skills to ensure
that their contribution to the board
remains informed and relevant
 ensure that information is
provided sufficiently in advance of
meetings to enable thorough
consideration of the issues facing
the board
 insist that information is sufficient,
accurate, clear and timely
 uphold the highest ethical
standards of integrity and probity
 question intelligently, debate
constructively, challenge
rigorously and decide
dispassionately
 promote the highest standards of
corporate governance and seek
compliance with the provisions of
the Combined Code wherever
possible.
NEDs on the board
Advantages
 Monitoring: they offer a clear
monitoring role, particularly on
remuneration committees to
dampen the excesses of
executives.
 Expertise: to expand this resource
available for management to use.
 Perception: institutional and
watchdog perception is enhanced
because of their presence.
 Communication: the implied
improvement in communication
KEY ROLES of NED’s between shareholders' interests
and the company.
Strategy role: this recognises that NEDs  Discipline: NEDs may have a
have the right and responsibility to positive influence on the success
contribute to strategic success, or otherwise of takeovers.
challenging strategy and offering advice
on direction.
Disadvantages
Scrutinising role: NEDs are required to
 Unity: lack of trust and needless
hold executive colleagues to account for
input can affect board operations.
decisions taken and results obtained.
 Quality: there may be a poor gene
pool of NEDs willing to serve.
Risk role: NEDs ensure the company has
 Liability: the poor remuneration
an adequate system of internal
with the suggested (Higgs)
controls and systems of risk
removal of stock options from the
management in place.
package coupled with the equal
liability in law for company
People role: NEDs oversee a range of operations might lead some to
responsibilities with regard to the question whether they want the
appointment and remuneration of job or not.
executives and will be involved in
contractual and disciplinary issues. a. Board of Directors - refers to the
collegial body that exercises the
To be effective, a NED needs to: corporate powers of all corporations
formed under the Corporation Code. It
 build a recognition by executives conducts all business and controls or
of their contribution in order to holds all property of such
promote openness and trust corporations.
b. Corporate Governance - refers to a
system whereby shareholders,
creditors and other stakeholders of a
corporation ensure that management
enhances the value of the corporation
as it competes in an increasingly
global market place.cralaw
c. Independent Director - refers to a
person other than an officer or
employee of the corporation, its
parent or subsidiaries, or any other
individual having any relationship with
the corporation, which would interfere
with the exercise of independent
judgment in carrying out the
responsibilities of a director. This
means that apart from the directors'
fees and shareholdings, he should be
independent of management and free
from any business or other
relationship which could materially
interfere with the exercise of his
independent judgment.cralaw
d. Public Company - refers to any
corporation with a class of equity
securities listed in an Exchange or
with assets in excess of Fifty Million
Pesos (P50,000,000.00) and having
two hundred (200) or more
stockholders each holding at least one
hundred (100) shares of a class of its
securities.cralaw
e. Management - refers to the body
given the authority to implement the
policies determined by the Board in
directing the course/business
activity/ies of the corporation.cralaw
f. Executive Director - refers to a
director who is at the same time
appointed to head a department/unit
within the corporate
organization.cralaw
g. Non-executive Director - refers to a
Board member with non-executive
functions.cralaw
h. Non-audit Work - refers to other
services offered by the external
auditor to a corporation that are not
directly related and relevant to its
statutory audit function. Examples
include accounting, payroll,
bookkeeping, reconciliation, computer
project management, data processing
or information technology outsourcing
services, internal auditing, and
services that may compromise the
independence and objectivity of the
external audit.cralaw
I. Internal Control - refers to the
process effected by a company's
Board of Directors, management and
other personnel, designed to provide
reasonable assurance regarding the
achievement of objectives in the
effectiveness and efficiency of
operations, the reliability of financial
reporting, and compliance with
applicable laws, regulations, and
internal policies.cralaw
j. Internal Control Environment - refers It involves the problem of directors and firms make independent
to the framework under which internal controlling a company whilst shareholders decisions that are guided and
controls are developed, implemented, own the company. In the past, a problem coordinated by market prices).
alone or in concert with other policies was identified whereby the directors might
or procedures, to manage and control not act in the shareholders (or other The decision is based on a comparison of
a particular risk or business activity, or stakeholders) best interests. Agency the "transaction costs" of the two
combination of risks or business theory considers this problem and what approaches. Transaction costs are the
activities, to which the company is could be done to prevent it. indirect costs (i.e. non production costs)
exposed.cralaw incurred in performing a particular activity,
 An agent is employed by for example the expenses incurred
k. Internal Auditing - refers to an a principal to carry out a task on through outsourcing.
independent, objective assurance and their behalf.
consulting activity designed to add  Agency refers to the relationship When outsourcing, transaction costs arise
value and improve an organization's between a principal and their from the effort that must be put into
operations. It helps an organization agent. specifying what is required and
accomplish its objectives by bringing  Agency costs are incurred by subsequently coordinating delivery and
a systematic, disciplined approach to principals in monitoring agency monitoring quality.
evaluate and improve the behaviour because of a lack of
effectiveness of risk management, trust in the good faith of agents.
control, and governance High transaction costs for outsourcing
 By accepting to undertake a task may suggest an in-house solution
processes.cralaw
on their behalf, an agent becomes whereas low transaction costs for
accountable to the principal by outsourcing would support the argument
l. Internal Audit Department - refers to
whom they are employed. The to outsource.
a department, division, team of
agent is accountable to that
consultants, or other practitioner(s)
principal. POSSIBLE CONCLUSIONS
that provide independent, objective
assurance and consulting services
designed to add value and improve an  Opportunistic behaviour could
organization's operations.cralaw have dire consequences on
financing and strategy of
m. Chief Audit Executive - refers to the businesses, hence discouraging
top position within the organization potential investors. Businesses
responsible for internal audit activities. therefore organise themselves to
In a traditional internal audit activity, minimise the impact of bounded
this would be the internal audit rationality and opportunism as
director. In the case where internal much as possible.
audit activities are obtained from  Governance costs build up
outside service providers, the chief including internal controls to
audit executive is the person monitor management.
responsible for overseeing the service  Managers become more risk
contract and the overall quality averse seeking the safe ground of
assurance of these activities, and easily governed markets.
follow-up of engagement results. The
term also includes such titles as
TCS VS. AT
general auditor, chief internal auditor,
and inspector general.cralaw
Transaction cost theory and agency
n. Independence - refers to that theory essentially deal with the same
environment which allows the person issues and problems. Where agency
to carry out his/her work freely and Transaction cost theory can be viewed as theory focuses on the individual agent,
objectively.cralaw part of transaction cost theory focuses on the
corporate governance and agency theory individual transaction.
o. Objectivity - refers to unbiased . It is based on the principle that costs will
mental attitude that requires the arise when you get someone else to do  Agency theory looks at the
person to carry out his/her work in something for you .e.g. directors to run the tendency of directors to act in their
such a manner that he/she has an business you own. own best interests, pursuing
honest belief in his/her work product salary and status. Transaction
and that no significant quality CONTEXT- “MAKE OR BUY” DECISION cost theory considers that
compromises are made. Objectivity managers (or directors) may
requires the person not to subordinate Transaction cost theory (Wiliamson) was arrange transactions in an
his/her judgment to that of first discussed in the context of the opportunistic way.
others.cralaw decision by a firm whether to do  The corporate governance
something in-house or to outsource. problem of transaction cost theory
p. Standards for the Professional is, however, not the protection of
Practice of Internal Auditing (SPPIA) - ownership rights of shareholders
Organisations choose between two
refers to the criteria by which the (as is the agency theory focus),
methods of obtaining control over
operations of an internal auditing rather the effective and efficient
resources:
department are evaluated and accomplishment of transactions
measured. They are intended to by firms.
represent the practice of internal  the ownership of assets
auditing as it should be, provide a (hierarchy solutions – decisions
framework for performing and over production, supply, and the
promoting a broad range of value- purchases of inputs are made by
added internal audit activities and managers and imposed through
foster improved organizational hierarchies) and
processes and operations.cralaw  buying in the use of assets (the
market solution – individuals