WHEREAS, among the powers and functions of the Board under Article II, Sec. 9 (h) of Republic Act No. 9298, the Philippine Accountancy Act of 2004 is œTo 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 ;

WHEREAS, the Board is also mandated under Article II, Sec. 9 (g), of Republic Act No. 9298, the Philippine Accountancy Act of 2004, œTo 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 it 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 ;

WHEREAS, accounting and auditing standards and practices require among others compliance with the Philippine Standards of Auditing (PSA) No. 220, Quality Control for an Audit of Financial Statements, as well as with the Philippine Standards for Quality Control (PSQC) No. 1, Quality Control for Firms that perform Audits and Review of Financial Statements, and other Assurance and Related Services Engagement;

WHEREAS, on the international level, the Philippine Institute of Certified Public Accountants (PICPA), the duly Accredited Professional Organization (APO) of Certified Public Accountants in the Philippines is a member body of the IFAC and is bound by Statement of Membership Obligations (SMO) 1, paragraph 6 on Quality Assurance which states that, œWhere government, regulators or other appointed authorities perform any of the functions covered in this Statement, member bodies should use their best endeavors to encourage those responsible for those functions to follow this SMO in implementing them, and assist them in that implementation where appropriate ;

WHEREAS, after a judicious study, and consultation with various stakeholders in the accountancy profession, the Board has deemed it proper to promulgate Rules and Regulations for the Implementation by the Professional Regulatory Board of Accountancy of the Quality Assurance Review Program;

WHEREFORE, the Board resolves as it hereby resolves to adopt the document entitled, œRules and Regulations for the Implementation by the Professional Regulatory Board of Accountancy of the Quality Assurance Review Program,  marked as Annex œA  and made part hereof, which should be considered as part of the rules and regulations for the practice of accountancy in the Philippines.

This Resolution and its Annex œA  shall take effect after fifteen (15) days following their publication in the Official Gazette or in a major daily newspaper of general circulation in the Philippines, whichever is earlier.

(SGD.) EUGENE T. MATEO
Chairman

(SGD.) FROILAN G. AMPIL         Member

(SGD.) RUFO R. MENDOZA         Member

(SGD.) LUCILA C. TARIELA
  Member

ATTESTED BY:

(SGD.) CARLOS G. ALMELOR
  Secretary, Professional Regulatory Boards

APPROVED:

(SGD.) NICOLAS P. LAPE A, JR.
  Chairman

(SGD.) RUTH RANA PADILLA         Commissioner

(SGD.) NILO L. ROSAS         Commissioner

 

Annex œA 

Rules and Regulations for the Implementation by the Professional Regulatory
  Board of Accountancy of the Quality Assurance Review Program

Pursuant to Sec. 9 (g) of Republic Act No. 9298, otherwise known as the œPhilippine Accountancy Act of 2004,  the Professional Regulatory Board of Accountancy hereby promulgates, subject to the approval of the Professional Regulation Commission, the following Rules and Regulations to carry out effectively the provisions of Sec. 9 (h) of the said Act relative to the œconduct of oversight into the quality of audits of financial statements. 

RULE I
  TITLE AND DEFINITIONS

Section 1. These Rules and Regulations shall be known and cited as œRules and Regulations for a QAR Program. 

Section 2. Definition of Terms. Unless otherwise expressly provided, the following terms shall be understood to mean:

a. Accredited Professional Organization (APO) - the recognized professional organization of certified public accountants (CPAs) duly recognized by both the Professional Regulation Commission (PRC) and the Board. The APO assists the Board in the implementation of the provisions of the Philippine relative to the practice of accountancy. The present APO for CPAs is the Philippine Institute of Certified Public Accountants (PICPA).

b. Audit Inspection Unit (AIU) - refers to the auditors of the QAR Council.

c. Board - refers to the Professional Regulatory Board of Accountancy.

d. CPA Practitioners - the collective term used to denominate an individual CPA, Firm or Partnership of CPAs engaged in the practice of public accountancy in the Philippines.

e. Quality Assurance Review (QAR) - a study, appraisal or review by the Board or its duly authorized representatives, of the quality of audit of financial statements through a review of the quality control measures instituted by CPA Practitioners engaged in the practice of public accountancy to ascertain compliance with prescribed professional, ethical and technical standards of public practice.

RULE II
  THE QUALITY ASSURANCE REVIEW COUNCIL (QARC) AND THE AUDIT INSPECTION UNIT (AIU)

QUALITY ASSURANCE REVIEW COUNCIL (QARC)

Section 3. There is hereby created the Quality Assurance Review Council as an independent body subject only to the administrative supervision of the Board.

Section 4. Relationship between the Board and QARC. In the performance of its duties and responsibilities, the QARC should not in any manner considered as intruding into the statutory function of the Board under Sec. 9 (h) of Republic Act No. 9298, the Philippine Accountancy Act of 2004, œTo 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.  Neither should the Board be construed as having delegated any of its statutory functions to the QARC.

The QARC and the Board are independent of each other. While this may be so, the Board is not prohibited from utilizing the QARC as the informal entity by which the Board is enabled to perform its statutory mandate œto conduct oversight.  The Board, as it may see fit may adopt the findings of fact of the QARC in the determination of whether any provision of these Rules and Regulations has been violated which would merit the imposition of sanctions and penalties.

Section 5. Composition of the Quality Assurance Review Council (QARC). The QARC is composed of a Chairman who preferably shall be the incumbent President of the Philippine Chamber of Commerce and Industry (PCCI) or someone known with high integrity in the business sector, a Vice Chairman who is the Chairman of the Board or his designated alternate from any member of the Board and seven (7) members each of whom would be designated by the Securities and Exchange Commission, the Bangko Sentral ng Pilipinas, the Bureau of Internal Revenue, the Commission on Audit, the Insurance Commission, the Philippine Stock Exchange and the APO for Certified Public Accountants. Provided, That no member shall have financial interest or otherwise, directly or indirectly, in an audit firm that may be subject to the quality assurance review: Provided, further, That no member shall be related within the fourth civil degree of consanguinity or affinity with any sole practitioner, partner or staff member of any firm that is subject of the quality assurance review by the Council.

Section 6. Term of Office of the QARC Members. The Chairman and Vice Chairman shall serve a term that is co-terminus with his term as President or Chairman of the National Chamber of Commerce and Industry he represents and the Chairman or Member of the Board, respectively. Members shall have a term of three (3) years unless replaced earlier by the designating institutions.

Section 7. Duties and Responsibilities of the QARC. The duties and responsibilities of the QARC include:

a. To promote, publicly and proactively, high quality external audits;
b. Through its Audit Inspection Unit (AIU) to monitor the quality of audits;
c. To hire the Chief Inspector of AIU;
d. To recommend to the Board for approval the Quality Assurance Review (QAR) plan for the year, which may be approved by the Board without referral to the Commission;
e. To implement the approved Quality Assurance Review (QAR) plan for the year through its Audit Inspection Unit (AIU);
f. To obtain independent technical advice on the subject of quality assurance when needed and appropriate;
g. To receive and evaluate the reports and recommendations of the AIU, and submit them to the Board for such action as may be necessary under the premises; including the imposition of administrative sanctions, in accordance with the Implementing Rules and Regulations to be promulgated in accordance with this Act, and the publication of the details of the violations to serve as a warning to the general public and to members of the accountancy profession;
h. To give recommendations to the Board on how it may effectuate its statutory duty of oversight into the quality of audits of financial statements, as well as to recommend the imposition of appropriate disciplinary action in the instances where such is merited;
i. To issue through the Board, annual reports for the benefit of the general public.

AUDIT INSPECTION UNIT (AIU)

Section 8. The Audit Inspection Unit (AIU). There is hereby created an Audit Inspection Unit which shall report to the QARC.

Section 9. AIU Personnel. The AIU is composed of a Head (the Chief Inspector), the Chief of Administration, Assistants to the Chiefs, Staff Auditors and such other employees that may be necessary to carry out effectively the functions of the QARC. They shall be appointed by the QARC.

Section 10. Term of Office of AIU Personnel. The AIU Personnel shall enjoy security of tenure and may be removed only for the just and authorized causes recognized under the labor and other laws.

Section 11. Qualifications of the Chief Inspector of the AIU. To be eligible for appointment as Chief Inspector of the AIU, a person must have the following qualifications.

a. Must have reached the level of senior manager or partner of a large accounting firm that has among its clients publicly listed companies;
b. Must have at least ten (10) years audit experience;
c. Must be of good moral character and has a current license as a CPA;
d. Must not have been found guilty of violating any professional, ethical and regulatory auditing standards;
e. Must have good oral and written communication skills, being especially adept at report writing.

Section 12. Duties and Responsibilities of the Chief Inspector of the AIU.

a. Exercises administrative supervision and control over the AIU and over its personnel as its head;
b. Assists the QAR Council in determining Quality Assurance policies;
c. Prepares the QAR Review Plan for each year for submission to the QAR Council for approval;
d. Selects the CPA Practitioners to be reviewed for the year, in accordance with the annual plan;
e. Approves the specific inspection plan for each practitioner selected for review, which must set forth the nature, extent and timing of such work;
f. Reviews and approves the individual inspection reports;
g. Has the final authority to approve all inspection reports;
h. Assists the QAR Council to prepare its Annual Report;
i. Recommends to the QAR Council the appointment and termination from service of subordinate AIU personnel as well as appropriate disciplinary action to be taken;
j. Provides for technical training of inspection personnel;
k. Performs such duties and functions as the QAE Council may assign.

Section 13. Appointment of the Chief Inspector and Chief of Administration, AIU. The QAR Council appoints the Chief Inspector and the Chief of Administration.

Section 14. Qualifications of the Chief of Administration, AIU. To be eligible for appointment as Chief of Administration, a person must have the following qualifications:

a. Must have reached the level of senior auditor in a large accounting firm;
b. Must have at least five (5) years audit experience;
c. Must be of good moral character and has a current license as a CPA;
d. Must not have been found guilty of violating any professional, ethical and regulatory auditing standards;
e. Must have good oral and written communication skills, being especially adept at report writing.

Section 15. Duties of the Chief of Administration. The Chief of Administration is responsible for the non-technical aspect of the QAR program. He/She reports to the Chief Inspector. The main duties of the Chief of Administration include:

a. Acts as the Officer-in-Charge of the AIU in the temporary absence of the Chief Inspector or during a vacancy of the office of Chief Inspector;
b. Serves as the administrative officer of the AIU;
c. Supervises the registration of CPA Practitioners in their respective categories;
d. Supervises the collection of registration fees;
e. Supervises the preparation of the regular financial reports of the AIU;
f. Supervises the administrative aspect of training of AIU personnel;
g. Supervises communications to all practitioners;
h. Performs such functions as may from time to time be assigned by the Chief Inspector.

Section 16. Assistants for the Chief Inspector and Chief of Administration. The Chief Inspector will hire technical assistants who have audit experience to assist him/her carry out the inspection work plan for the year approved by the QAR Council. They shall carry out their inspection work in accordance with the prescribed methodology. They will report directly to the Chief Inspector.

The Chief of Administration will hire clerical assistants to help him/her carry out the administrative tasks of AIU. The hiring of these assistants must be approved by the Chief Inspector. These assistants shall report directly to the Chief of Administration.

Section 17. Staff Auditors. These are the persons who are responsible for the field work of a QAR assignment. They shall be appointed by the Chief Inspector. They

a. Must have reached the level of senior auditor or its equivalent in a large accounting firm;
b. Must have at least five years experience in the audit of large or publicly listed companies or teaching financial accounting and practical auditing in a CHED-recognized educational institution;
c. Must not have been terminated from employment as an auditor due to incompetence or below average rating.

RULE III
  SCOPE OF COVERAGE, ENROLLMENT IN THE QAR PROGRAM

Section 18. Coverage of the QAR Program. The QAR Program covers all CPAs in the public accounting sector, whether as an individual practitioner, a firm or a partnership.

Section 19. Mandatory Coverage. Enrollment in the QAR Program is a pre- requisite for accreditation or renewal of accreditation as a CPA in public practice by the Board of Accountancy. The CPA Practitioner ™s registration category should be stated in the certificate of accreditation.

Section 20. Creation of APO QAR Division. The Board hereby directs the Philippine Institute of Certified Public Accountants (PICPA) to provide the necessary infrastructure, facilities and mechanisms by which the QARC/AIU can operate independently under its own mandate. For this purpose, the PICPA QAR Division shall collect from the CPA practitioners their allocated share in the expenses relative to the conduct of the QAR Program apart from the accreditation fee that the practitioners pay directly to the Commission. The PICPA QAR Division shall keep a separate book of accounts of its expenses and amounts collected from the practitioners and make a monthly report thereof to the Commission through the Board. Any excess collection shall be used exclusively as working capital for the QAR Program activities.

Section 21. Enrollment in the QAR Program. Enrollment in the duly accredited QAR Program through the PICPA QAR Division shall be considered by the QARC as compliance with the requirement of mandatory coverage.

Section 22. Guidelines for QAR Program. The Board shall accredit the QAR Program, if it contains the following basic minimum guidelines and it conforms with internationally accepted norms for maintaining a QAR Program:

a. The QAR Program shall be conducted by the AIU which reports directly to the QARC.
b. The registration with the QAR Program should be good only for one year, and may be renewed annually for as long as the CPA Practitioner issues audit reports on the financial statements of their clients, and have not been the subject of sanctions and penalties imposed by the Board for violation of the provisions of these Rules and Regulations.
c. CPA Practitioners should be registered in accordance with the following risk categories.

Category A - registration for CPA Practitioners handling clients that use the full IFRSs or their Philippine equivalents. These would cover CPA practitioners auditing public-interest entities (listed and not-listed but with public accountability). This category is further broken down into four sub categories:

Category	CPA Practitioners with
A (1)	Over 10 listed companies as clients
A (2)	1 to 10 listed companies as clients
A (3)	Over 10 non listed companies as clients
A (4)	1 to 10 non listed companies as clients

Category B - registration for CPA Practitioners handling clients that use the IFRS or their Philippine equivalents for Small and Medium-sized enterprises. This category will be further broken down into four sub categories:
 

Category	CPA Practitioners with
B (1)	over 200 clients
B (2)	101 to 200 clients
B (3)	51 to 100 clients
B (4)	1 to 50 clients

d. Registration rules. The following registration rules must be observed:

1) A CPA Practitioner can only register in one category (highest sub-category) division;
2) CPA Practitioner registered under Category B cannot audit companies that use the full IFRS or their Philippine equivalent, unless he upgrades his registration to Category A;
3) A CPA Practitioner registered under any of the sub-categories of Category A must upgrade his registration if he exceeds the number of clients under the specific sub-category under which he is registered;
4) A CPA Practitioner registered under any of the sub-categories of Category B must upgrade his registration if he exceeds the number of audit reports under the specific sub-category under which he is registered;
5) All applications for registration must include information as to the number of clients classified as to public-interest entities using full IFRS and small and medium-sized entities using IFRS for SMEs under oath and signed by the Individual CPA, or the managing director or head of the Firm of partnership provided that the signatory shall be liable administratively or criminally for any misrepresentations made under oath;
6) The Registration Rules may provide for penalties provided they do not exceed the penalties provided for under these Rules and Regulations, provided further that, the Board is not precluded from imposing the appropriate penalties under the Philippine Accountancy Act of 2004.

e. Allocation of expenses among CPA Practitioners. The reimbursement of costs relative to the QAR Program from the CPA practitioners should consider the following:

1) The criteria to be used in the determination of the cost allocation should include as a minimum requirement the following parameters:

a) Nature of the Practice. The nature of a practice can be described by the clientele that the CPA Practitioners has and their risk exposure to the public for any audit failure that might occur. For example, practitioners who have listed companies among their clients have a much higher risk exposure to the public and will require more extensive and highly technical review and therefore are allocated a higher annual charge.
b) Extent of Quality Assurance Work to be applied. The extent of quality assurance work to be applied to a Practitioner will be determined by the Risk Category that he falls into. For instance, a practitioner that has publicly listed companies among its clientele falls within category A (1) which has the highest risk exposure. This practitioner would get a full scope quality assurance inspection as provided for by the QAR methodology adopted and therefore he bears a higher annual charge.
c) Timing or frequency of the QAR. Timing or frequency of the QAR will be determined by either the risk or size profile of a CPA Practitioner, or both. The Practitioner with the highest risk profile would be subjected to an annual QAR. Practitioners subjected to more frequent QARs bear a higher annual charge.

For instance, Practitioners who are targeted for annual audits are the larger ones who have more than one partner. For a multi-partnered firm it would not be possible to do a QAR for all the partners in one year. The succeeding QAR would cover the work of partners not reviewed in previous years.

2. The annual registration fees representing the estimated share in the QAR Program costs that will be collected in the first year of the implementation of these rules should not exceed the following:

Category	Sub-Category	Annual Charge	Rationale for Charge
Category A Auditors of Public-Interest Entities Using FULL IRFS	A (10 With over 10 listed companies	P250,000	High risk, annual QAR, Full scope QAR, Large-sized firm
	A (2) With 1 to 10 listed companies	P200, 000	High risk, annual QAR, Full scope QAR, Large-sized firm
	A (3) With over 10 not listed companies	P150, 000	Less risky, QAR every two years, Full scope, Larger sized firm
	A (4) With 1 to 10 not listed companies	P100, 000	Less risky, QAR every two years, Full scope, Smaller sized firm
Category B Auditors of Companies Using the IFRS for SMEs years.	B (1) With over 200 clients	P30, 000	Minimal risk, QAR every three years, Scope for SME, Largest of this category
	B (2) With 101 to 200 clients	P20, 000	Minimal risk, QAR every three years, Scope for SME, Smaller than previous category
	B (3) With 51 to 100 clients	P8, 000	Minimal risk, QAR every three years, Scope for SME, Smaller than previous category
	B (4) With 1 to 50 clients	P4, 000	Minimal risk, QAR every three years, Scope for SME, Smaller than previous category

Provided, that the registration fees may be adjusted in the succeeding years depending on the practitioners ™ share in the expected expenses of the QAR Program. Provided further, that the Rationale for the Charges should not in any way be construed as limiting the scope of QAR that may be conducted by the AIU.

Section 23. Confidentiality of Information, Findings and Specific Reports. The information obtained, work and reports of the AIU are to be considered strictly confidential and are not to be divulged except only for purposes of determination whether or not to impose sanctions for violation of these Rules and Regulations or upon order of a court of competent jurisdiction.

RULE IV
PENALTIES AND SANCTIONS

Section 24. General Penalties and Sanctions. The general penalties and sanctions for violation of any provisions of these Rules and Regulations shall be in accordance with the penalty provided for under Section 36 of Republic Act No. 9298, the Philippine Accountancy Act of 2004 which provides that, œAny 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 (P50,000.00) or by imprisonment for a period not exceeding two (2) years or both,  without prejudice to the imposition of administrative penalties of warning, admonition, fine, suspension or cancellation of the professional license as a CPA.

Section 25. Administrative Penalties and Sanctions. After the requisite due process the Board may impose the following administrative penalties for violation of the provisions of these Rules and Regulations.

a. Failure to comply with the registration requirements and payment of the requisite fees under Rule III, cancellation of the Board accreditation and refusal to grant accreditation until compliance.

b. For Firms and partnerships, failure or refusal to undertake corrective measures recommended by the AIU within the period stated, the following penalties shall be imposed, in addition to cancellation of the Board accreditation and refusal to renew the same until compliance:

1) First offense, P1,000.00 per day of delay;
2) Second offense, P3,000.00 per day of delay;
3) Third offense, P5,000.00 per day of delay plus recommendation for criminal prosecution.

c. For individual Practitioners and Managing Partners of Firms and partnerships, for failure or refusal to undertake corrective measures recommend by the AIU within the period stated, the following penalties shall be imposed, in addition to the penalties imposed for the Firms and partnerships and cancellation of the Board accreditation and refusal to renew the same until compliance:

1) First offense, P500.00 per day of delay;
2) Second offense, P1,000.00 per day of delay plus one year suspension of the CPA License;
3) Third offense, P5,000.00 per day of delay plus cancellation of CPA License and recommendation for criminal prosecution.

d. It is to be understood that the first to third offenses must have been committed within and period of four (4) years computed from the time of the imposition of the penalty for the first offense.

RULE V
MISCELLANEOUS PROVISIONS

Section 26. Separability Clause. If, for any reason any section or provision of these Rules and Regulations or the application of such sections or provisions to any person or circumstance is declared unconstitutional or null and void, no other section or provision of these Rules and Regulations shall be affected thereby.

Section 27. Effectivity Clause. These Rules and Regulations duly approved by the Professional Regulation Commission shall take effect after fifteen (15) days following its publications in the Official Gazette or in a major daily newspaper of general circulation in the Philippines, whichever is earlier.