20.2 The Regulatory Framework of the Accountancy Profession

The Regulatory Framework of the Accountancy Profession

The practice of accountancy in the Philippines is governed by Republic Act No. 9298 (Philippine Accountancy Act of 2004) and its IRR. This section covers the four sectors of practice, the composition, qualifications, terms, and powers of the Professional Regulatory Board of Accountancy, accreditation for public practice and by other regulators, CPD requirements, and the Auditing and Assurance Standards Council (AASC) and the standards it issues.

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1. Philippine Regulatory Framework Governing Accountancy

Republic Act No. 9298 (The Philippine Accountancy Act of 2004)

Signed into law on May 13, 2004, Republic Act No. 9298, alongside its Implementing Rules and Regulations (IRR), provides the comprehensive legislative charter governing the practice of accountancy in the Philippines. It repealed Presidential Decree No. 692 (The Revised Accountancy Law of 1975).

Section 3 of RA 9298 establishes three primary legislative objectives:

1. The standardization and regulation of accounting education;
2. The examination for registration of Certified Public Accountants (CPAs); and
3. The supervision, control, and regulation of the practice of accountancy in the Philippines.

Four Sectors of Accountancy Practice

RA 9298 recognizes that professional accountancy is practiced across four distinct functional sectors:

                                  Sectors of Accountancy Practice
                                               │
         ┌─────────────────────────┬───────────┴─────────────┬─────────────────────────┐
         ▼                         ▼                         ▼                         ▼
  Public Practice        Commerce & Industry         Education / Academe          Government
• Individual CPAs,        • Decision-making /       • Teaching accounting,     • Positions in COA,
  sole practitioners,       supervisory roles in      auditing, taxation,        BIR, DOF, BSP, DBM,
  and partnerships          private enterprises       or business law            or local government
• Auditing, tax, MAS,     • Controller, VP Finance, • Deans, department        • Custody of public
  accounting services       Chief Accountant          chairs, and faculty        funds and state audit

• Practice in Public Accountancy: Involves the rendering of audit or verification of financial transactions and accounting records, preparation or signing of audit reports, tax services, or management consultancy services to more than one client on a fee basis. Corporate form of organization is strictly prohibited.
• Practice in Commerce and Industry: Involves employment in private enterprises where the position requires being a CPA, particularly where the professional oversees financial records, prepares financial statements, or coordinates with external auditors.
• Practice in Education / Academe: Involves employment in educational institutions teaching accounting, auditing, taxation, management advisory (management services), and related professional subjects.
• Practice in Government: Involves employment in the civil service, government-owned or controlled corporations (GOCCs), or state agencies (e.g., Commission on Audit, Bureau of Internal Revenue, Bureau of the Treasury, Department of Finance) where the position entails auditing state accounts, administering tax laws, or managing public funds.

The Professional Regulatory Board of Accountancy (PRC/BOA)

The Board of Accountancy (BOA) is the professional regulatory body operating under the administrative supervision of the Professional Regulation Commission (PRC).

Composition and Appointment

• The BOA consists of one (1) Chairman and six (6) Members (total of 7 members).
• Members are appointed by the President of the Philippines from a list of three (3) recommendees submitted by the PRC for each position, chosen from a list of five (5) nominees ranked and submitted by the Accredited Integrated Professional Organization (AIPO / APO), which is the Philippine Institute of Certified Public Accountants (PICPA).
• The Board elects a Vice-Chairman from among its members for a term of one (1) year.
• The four sectors of accountancy shall, as much as possible, be equitably represented on the Board.
• Members serve three-year terms. A person who has served two successive complete terms cannot be reappointed until one (1) year has lapsed, an appointment to fill an unexpired term does not count as a complete term, and no one may serve on the Board for more than twelve (12) years (IRR Rule II, Sec. 7).

Qualifications of Board Members

At the time of appointment, a member of the BOA must:

1. Be a natural-born citizen and resident of the Philippines;
2. Be a duly registered Certified Public Accountant with at least ten (10) years of work experience in any scope of practice of accountancy, nominated to represent a sector in which the nominee has considerable professional experience;
3. Be of good moral character and not have been convicted of any crime involving moral turpitude;
4. Not have any direct or indirect pecuniary interest in any school, college, university, or institution conferring an academic degree necessary for admission to the practice of accountancy, or in any institution offering review classes for the licensure examination, and not be a member of the faculty or administration of any of them at the time of appointment; and
5. Not be a director or officer of the APO (PICPA) at the time of appointment.

Regulatory, Administrative, and Disciplinary Powers

The BOA exercises comprehensive executive, quasi-legislative, and quasi-judicial authority:

• Prescribing and Adopting Standards: Promulgates rules and regulations, and adopts accounting standards (PFRS/PAS via FRSC) and auditing standards (PSAs via AASC).
• Licensure Examination: Prepares the syllabi, formulates examination questions, administers the CPA Licensure Examination (CPALE), and releases official examination results.
• Oversight of Audit Quality: Reviews the quality control measures instituted by auditors to ensure compliance with accounting and auditing standards, and may issue cease and desist orders against violators of RA 9298 or the standards it promulgates.
• Registration and Licensing: Issues Certificates of Registration and Professional Identification Cards to successful CPALE candidates, and renews professional identification cards triennially.
• Accreditation: Evaluates and approves applications for accreditation of individual CPAs, sole practitioners, and partnerships in public practice and accounting teachers in academe.
• Administrative Investigation and Subpoena Powers: Conducts formal administrative investigations into illegal practice, professional misconduct, and violations of RA 9298 or the Code of Ethics; issues subpoenas and subpoenas duces tecum; and imposes disciplinary sanctions including suspension, cancellation, or revocation of CPA certificates of registration.

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2. Accreditation of CPAs in Public Practice

Under Section 28 of RA 9298, CPAs, firms, and partnerships are prohibited from engaging in the practice of public accountancy unless they have been issued a valid Certificate of Accreditation by the BOA and PRC.

Core BOA Accreditation Requirements

1. Meaningful Experience Requirement: The applicant must possess at least three (3) years of meaningful experience in any of the areas of public practice including work as an audit assistant, tax staff, or equivalent accounting role under the supervision of a licensed CPA.
2. CPD Compliance: Compliance with the Board's Continuing Professional Development (CPD) requirements.
3. Business Structure Restrictions: Public practice may only be conducted as a Sole Proprietorship (Individual CPA / Sole Practitioner) or a Partnership (General Professional Partnership under the Civil Code). RA 9298 bars the SEC from registering any corporation organized for the practice of public accountancy, so a CPA's personal professional liability cannot be shielded behind a corporate veil.
4. Validity Period: Registration for public practice must be renewed every three (3) years (RA 9298, Sec. 31). Under the IRR, a registration approved in any month expires on December 31 of the third year counting the year of approval, and renewal is filed on or before September 30 of the expiry year.

Additional Accreditation by Other Regulators

BOA/PRC accreditation is the baseline for all public practice. Auditors of regulated entities need additional accreditation from the regulator concerned, and each regulator classifies accredited auditors by the kinds of clients they may audit:

Regulators may suspend or revoke an auditor's accreditation for deficient audit work, independent of any disciplinary action by the Board.

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3. Continuing Professional Development (CPD) Requirements

Continuing Professional Development keeps CPAs technically competent and ethically grounded throughout their careers.

Legal Basis

• RA 9298, Sec. 32 requires all CPAs to follow the continuing professional education rules the Board promulgates, subject to PRC approval.
• Republic Act No. 10912 (Continuing Professional Development Act of 2016) makes CPD mandatory for all registered professionals and a condition for renewing the PRC Professional Identification Card every three years.

Unit Requirements

• Board of Accountancy guidelines: CPAs are expected to earn 120 CPD units per three-year compliance period, spread across the competency areas below. Full compliance is required for accreditation and renewal of accreditation to practice public accountancy.
• PRC ID renewal: PRC transition rules adopted after RA 10912 have allowed renewal with a reduced number of units (as few as 15) or a CPD undertaking. The requirement for renewal has changed several times, so check the current PRC and Board resolutions before renewing.

Competency Areas

CPD units must be distributed across competency areas rather than a single narrow topic:

1. Technical Competence: Financial accounting and reporting, Philippine Standards on Auditing, taxation, regulatory compliance, management services, and digital audit tools.
2. Professional Skills: Analytical thinking, professional skepticism, data analytics, corporate governance, and communication skills.
3. Professional Values, Ethics, and Attitudes: The Code of Ethics, independence requirements, and professional skepticism in fraud detection.

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4. The Auditing and Assurance Standards Council (AASC)

Role and Mandate

Under Section 9(A) of the IRR of RA 9298, the PRC, upon the recommendation of the BOA, created the Auditing and Assurance Standards Council (AASC) to assist the Board in establishing and promulgating auditing and assurance standards in the Philippines.

The AASC acts as the national standard-setting body responsible for reviewing, adopting, and adapting international standards issued by the International Auditing and Assurance Standards Board (IAASB) under the auspices of the International Federation of Accountants (IFAC). The standards promulgated by the AASC become binding professional regulations upon formal approval by the BOA and confirmation by the PRC.

Architecture of Standards Promulgated by the AASC

The standards issued by the AASC govern all assurance and related services:

                                  AASC Standards Architecture
                                               │
      ┌────────────────────┬───────────────────┼────────────────────┬────────────────────┐
      ▼                    ▼                   ▼                    ▼                    ▼
     PSQM                 PSA                 PSRE                 PSAE                 PSRS
Philippine           Philippine           Philippine           Philippine           Philippine
Standards on         Standards on         Standards on         Standards on         Standards on
Quality              Auditing             Review               Assurance            Related
Management           (Financial           Engagements          Engagements          Services
(Firms & Reviews)    Statements Audit)    (Interim/Historical) (Other Assurance)   (AUP & Compilations)

• PSQM (Philippine Standards on Quality Management): Applied at the firm level across all assurance and related services engagements.
• PSA (Philippine Standards on Auditing): Applied in the audit of historical financial information.
• PSRE (Philippine Standards on Review Engagements): Applied in the review of historical financial information.
• PSAE (Philippine Standards on Assurance Engagements): Applied in assurance engagements dealing with subject matters other than historical financial information (e.g., sustainability reports, internal control effectiveness).
• PSRS (Philippine Standards on Related Services): Applied to compilation engagements and agreed-upon procedures engagements.

Composition of the AASC

Under the IRR, the AASC has 15 members: a Chairman, who had been or is a senior practitioner in public accountancy, and 14 representatives:

The public practice seats are distributed equitably among big, medium, and small practitioners. Unlike the accounting standard setter (the FSRSC, formerly FRSC), the AASC has no BIR seat. The Chairman and members are appointed by the PRC upon the Board's recommendation in coordination with the APO, and serve three-year terms renewable for another term.

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Corporate Governance and the Audit

Corporate governance is the system of direction and control through which a board oversees management on behalf of shareholders and other stakeholders. For auditors, the relevant governance body is those charged with governance (TCWG), usually the board and its audit committee.

The audit committee recommends the appointment and removal of the external auditor, reviews the audit plan, scope, and fees, evaluates the auditor's independence and any non-audit services, oversees internal audit, and reviews the financial statements before board approval. PSA 260 and PSA 265 require the auditor to communicate with TCWG, which makes the audit committee the auditor's main point of contact on significant findings, control deficiencies, and independence.