The Code of Ethics of Professional Accountants

Md. Al Amin Siddiki FCA

The Code of Ethics of Professional Accountants

Audit & Assurance

Date: 05 May 2015

 

Need for Ethics:

Professional Accountants have a responsibility to consider the public interest and maintain the reputation of the accounting profession.  Personal self- interest must not prevail over these duties.

The key reason accountants need to have an ethical code is that people rely on them and their expertise.

This code contains three parts

·         Part A: General Application of the code

·         Part B: Professional Accountants in Public Practice

·         Part C: Professional Accountants in Business

Part A: Establishes the fundamental principles of professional ethics and provides a conceptual framework that professional accountants shall apply to:

Ø  Identify threats

Ø  Evaluate the significance of the threats identified

Ø  Apply safeguards to eliminate/reduce the threats

Part B & Part C: Describes how the conceptual framework applies in certain situations. They provide example of safeguards that may be appropriate to address threats to compliance with the fundamental principles.

Part A: General Application of the code

IFAC Code contains a number of fundamental principles as bellow:

1. Integrity
2. Objectivity
3. Professional Competence and due care
4. Confidentiality
5. Professional Behavior

Integrity:

A professional accountant should be straight forward and honest in all professional and business relationship.

Objectivity

A professional accountant should not allow:-

1.       Bias

2.       Conflict of interest

3.       Undue influence

To override professional or business judgments.

Professional Competence and due care

A professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments in practices, legislation and techniques.

A professional accountant should act diligently and in accordance with applicable technical and professional standards.

Confidentiality

A professional accountant should not disclose any such information to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose.

Professional Behavior

A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession.

Part B: Professional Accountants in Public Practice

This part of the code describes how the conceptual framework contained in Part A applies in certain situation to professional accountants in public practice.

Threats and Safeguards

Threats fall into one or more of the following categories

1. Self interest
2. Self review
3. Advocacy
4. Familiarity and
5. Intimidation

Section 210: Professional Appointment

Client Acceptance:

Ø  Before accepting a new client relationship, identify potential threat/threats to integrity or professional behavior

Ø  If any, evaluate the significance and apply safeguards to reduce/eliminate those threats by:

Ø  Obtaining knowledge

Ø  Improve the strength of IC of client

Ø  Peer review

Ø  Where it is not possible to reduce to acceptable level, decline to enter into relationship

 

Engagement Acceptance:

Ø  Identify potential threat/threats to professional competence and due care

Ø  If any, evaluate the significance and apply safeguards to reduce/eliminate

Ø  Acquiring knowledge

Ø  Using experts

Ø  Assigning sufficient staff

Ø  When professional accountants rely on advice or work of an expert, the professional accountant shall determine the reliance considering reputation, expertise, ethical standards etc.

Changes in professional Appointment

Ø  Where a professional accountant is asked to replace, the proposed accountant shall determine whether there any reasons for not accepting the engagement.

Ø  If any, evaluate the significance and apply safeguards to reduce/eliminate

Ø  Communicate with predecessors

Ø  Obtaining information from other sources

Ø  When the threats cannot be eliminated/reduced, decline the engagement

Section 220: Conflict of Interest

A professional accountant in public practice shall take reasonable steps to identify circumstances that could pose a conflict of interest. Such circumstances may create threats to compliance with the fundamental principles (objectivity).

Safeguards:

Depending on the circumstances following safeguards may apply:

1.       Use of separate engagement team

2.       Clear guidance on objectivity and confidentiality

3.       Regular review work procedures

Section 230: Second Opinion

Where professional accountant asked to provide a second opinion on reporting/auditing standards that is not an existing client: i.e.: opinion asked based on inadequate evidence

The significance of any threat will depend on the circumstances of the request and all other available facts.

Apply Safeguards: such as seeking client permission to communicate with existing accountant

If not permit by the client consider the fact and take appropriate.

Section 240: Fees and others types of remuneration

New Engagement:

A professional accountant may quote whatever fee is appropriate.

Threats:Self interest, professional competence & due care.

Safeguards: assigning appropriate time and staff

Contingent Fee:

Threats: Self interest, professional competence & due care.

Safeguards:

•       Quality control policies and procedures

•       Written agreement with client as to the basis of remuneration

Section 250:Marketing professionals services

When a PA in public practice solicits new work through advertising or other form of marketing, there may be:

Threats: Self interest to professional behavior

Professional accountant shall be honest and truthful and not:

•       Make exaggerated claims

•       Make unsubstantiated comparison to work of another

Section 260:Gift & Hospitality

Threat: Self Interest; Familiarity

Safeguards:Evaluate the significance of any threats and apply safeguards to reduce/eliminate. Otherwise shall not accept such offer.

Section 270: Custody of client assets

Threat:Self Interest

Safeguards:

²  Keep such assets separately

²  Use the assets for intended purpose

²  Comply with relevant laws relating to the holding of assets.

Where holding of assets are part of engagement:

A professional accountant shall make enquiry about source, if found illegal, shall seeking legal advice

Section 280: Objectivity -- All services

Threat: Self Interest

Safeguards:

²  Keep such assets separately

²  Use the assets for intended purpose

²  Comply with relevant laws relating to the holding of assets.

Where holding of assets are part of engagement:

A professional accountant shall make enquiry about source, if found illegal, shall seeking legal advice

To be continued…….