The Code of Ethics of Professional Accountants & Professional Misconducts

Md. Al Amin Siddiki FCA

The Code of Ethics of Professional

Accountants & Professional Misconducts

Audit & Assurance (Application Level)

Date: 05 May 2015

 

Section 290: Financial Interest

A Financial interest in a client constitutes a substantial self-interest threat. The parties listed below are not allowed to own financial interest in a client:

• The Assurance Firm
• Any partner in the assurance firm
• Any influencing person
• An immediate family member of such person

The following safeguards will therefore be relevant

Ø  Disposing the interest

Ø  Removing the individual form the team

Ø  Inform the audit committee of the situation

Ø  Using an independent partner to review work carried out.

   Loan and Guarantees

                Threat: Self Interest

                Safeguards:

²  Involving an additional professional accountant from outside to review the work performed

A loan/guarantee of a loan from assurance client, is a bank/similar institution would not create a threat, where loan/guarantee provided under normal lending procedures, ToR. 

   Close Business Relationship with Assurance Clients

A close business relationship will involve a commercial common financial interest, which in addition to a self interest threat, could cause an intimidation threat.

Ø  Operating a joint venture between the firm and the client/director/ senior management of the client.

Ø  Other commercial transactions, such as the audit firm leasing its office from the assurance client.

Unless  the financial interest immaterial and the relationship is clearly insignificant , an assurance provider should not participate in such a venture with an assurance client.

Generally, purchasing goods and services from an assurance client in the ordinary course of business does not constitute a threat to independence.

    Family and personal Relationship

Threats: Family  or close personal relationships between firms and client staff could seriously threaten independence. Each situation has to be evaluated individually.

Safeguards

Ø  Removing the individual from the assurance team.

Ø  Restructuring  responsibilities.

    Employment with assurance Client (Firm to Client)

                Scenario

Ø  Dual employment.

Ø  Possible employment with the assurance client

Ø  A former partner turned FINANCE DIRECTOR has too much knowledge of the firm’s systems and procedures.

Threats: Self Interest, Familiarity and Intimidation

Safeguards

Ø  Modifying the assurance strategy.

Ø  Involving an additional independent professional accountant.

Ø  Quality control review of the assurance engagement

    Recent Service with assurance Client (Client to firm)

Scenario

Ø  A former officer/director/employee of assurance client turned partner/member of assurance team

Ø  The significance of threat will depend upon some factors: position, length of service with client and role on assurance team.

Threats: Self Interest, Self Review & Familiarity

Safeguards

Ø  Involving an additional independent professional accountant.

Ø  Quality control review of the assurance engagement

    Serving an officer/director on the Board of Assurance Clients

Scenario: If a  partner/employee of assurance firm serve as an officer/director on the board of an assurance client.

Threats: Self Interest, Self Review

Safeguards

Ø  No safeguard could reduce the threats to an acceptable level, since it is so significance.

Ø  Refuse/withdraw from assurance engagement.

    Long Association of Senior Personnel with Assurance Clients

Scenario: Using the same senior personnel on an assurance engagement over a long period of time.

Threats: Familiarity

Safeguards

Ø  Team rotation

Ø  Involving additional professional accountant to review.

Ø  Independent internal quality reviews

    Financial Statements Audit that are Listed Entities

Scenario: Using the same engagement partner/same individual responsible for the engagement quality control review on FS audit over a prolong period of time

Threats: Familiarity

Safeguards

Ø  Partner/quality controller continuation not more than pre-defined period. (7 years)

Ø  Gap between ending and starting not less that two years

    Financial Statements Audit that are not Listed Entities

Scenario: Firm may provide a FS audit that is not a listed entity with accounting & bookkeeping services, including payroll services

Threats: Self Review

Safeguards

Ø  Different individual for assurance & other services

Ø  Requiring source data for the accounting entry to be originated by the audit client

Ø  Obtaining audit client approval for any proposed journal entry or other changes affecting the FS

    Financial Statements Audit that are Listed Entities (with non assurance services)

Ø  The provision of accounting & bookkeeping services, including payroll services, which forms the basis of the FS on which the audit report is provided

Ø  May impair the independence of the firm or at least give the appearance of impairing independence.

Safeguards

Ø  No safeguards other than the prohibition of such services except in emergency to reduce the threat to acceptable level.

    Fees (Relative size)

When the total fees generated by an assurance client represent a significant proportion of fees, the dependence & concern about the possibility of losing client may create a self interest threat.

Safeguards

Ø  Discussing the extent & nature of fees charged with audit committee

Ø  Taking steps to reduce dependency on the client

Ø  External quality control review

Ø  Involving additional professional accountant to review the work performed.

    Fees (Overdue)

A significant due form assurance client for professional services remain unpaid for a long period of time. A self interest threat may be created.

Safeguards

Ø  Discussing the level of outstanding fees with those charges with governance

Ø  Involving additional professional accountant to review the work performed.

    Pricing

When a firm obtains a assurance engagement at a significant lower fee than predecessor firm, the self interest threat may be created.

Safeguards

Ø  Appropriate time and qualified staff assign to the task

Ø  All applicable standards, guidelines and quality control procedures are being complied with

    Gift & Hospitality

A significant (in value) gift & hospitality accepted by assurance team.

The threats to independence cannot be reduced to an acceptable level by the application of any safeguard. So assurance team should be accept such gifts or hospitality

    Actual or threatened litigation

When a A significant (in value) gift & hospitality accepted by assurance team.

The threats to independence cannot be reduced to an acceptable level by the application of any safeguard. So assurance team should be accept such gifts or hospitality

PART C

This Part of the Code describes how the conceptual framework contained in Part A applies in certain situations to professional accountants in business

v    Why for Professionals in Business

Investors, creditors, employers and other sectors of the business community, as well as governments and the public at large, all may rely on the work of professional accountants in business. They are may be solely or jointly responsible for the preparation and reporting of financial and other information, which both their employing organizations and third parties may rely on.

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.

Broad range of threat of professionals in business is:

1.       Self-interest

2.       Self-review

3.       Advocacy

4.       Familiarity; and

5.       Intimidation.

Examples of circumstances that may create self-interest threats for a professional accountant in business include:

Ø  Holding a financial interest in, or receiving a loan or guarantee from the employing organization.

Ø  Participating in incentive compensation arrangements offered by the employing organization.

Ø  Inappropriate personal use of corporate assets.

Ø  Concern over employment security.

Ø  Commercial pressure from outside the employing organization.

An example of a circumstance that creates a self-review threat for a professional accountant in business is determining the appropriate accounting treatment for a business combination after performing the feasibility study that supported the acquisition decision.

When furthering the legitimate goals and objectives of their employing organizations, professional accountants in business may promote the organization’s position, provided any statements made are neither false nor misleading. Such  actions generally would not create an advocacy threat.

Examples of circumstances that may create familiarity threats for a professional accountant in business include:

Ø  Being responsible for the employing organization’s financial reporting when an immediate or close family member employed by the entity makes decisions that affect the entity’s financial reporting.

Ø  Long association with business contacts influencing business decisions.

Ø  Accepting a gift or preferential treatment, unless the value is trivial and inconsequential.

Examples of circumstances that may create intimidation threats for a professional accountant in business include:

Ø  Threat of dismissal over a disagreement about the application of an accounting principle or the way in which financial information is to be reported.

Ø  A dominant personality attempting to influence the decision making process

Safeguards that may eliminate or reduce threats to an acceptable level fall into two broad categories:

Ø  Safeguards created by the profession, legislation or regulation (as like professionals in practices)  and

Ø  Safeguards in the work environment.

Safeguards in the work environment include:

1.       The employing organization’s systems of corporate oversight or other oversight structures.

2.       The employing organization’s ethics and conduct programs.

3.       Recruitment procedures in the employing organization emphasizing the importance of employing high caliber competent staff.

4.       Strong internal controls.

5.       Appropriate disciplinary processes.

6.       Consultation with another appropriate professional accountant.

In circumstances where a PA in business believes that unethical behavior or actions by others will continue to occur within the employing organization, the PA may consider obtaining legal advice.

In those extreme situations where all available safeguards have been exhausted and it is not possible to reduce the threat to an acceptable level, a professional accountant in business may conclude that it is appropriate to resign from the employing organization.

By Laws:

Schedule C- Part 1

Professional Misconducts

1. In case of professional services: enters into partnership with an unqualified person(s) within the country.
2. Allows any person(s) to practice in his name as chartered accountant unless he/she is CA and partnership with him/her or employed by him/her.
3. Pay or allow directly/indirectly any share, commission to any other person except partner/retired partner/legal representative or widow of deceased partner.
4. Accept any part of the profit of the professional work of a lawyer/ITP/auctioneer/broker/other agent/ any other person except the member of ICAB.
5. Accept a position as auditor without communicating with predecessor (if applicable)
6. Accept an appointment as auditor of a company with non compliance of section 210 of CA 1994.
7. Accepts a position as auditor with undercutting.

8. Publish/sanction to publication of expressions of thanks or appreciation by the clients in any laudatory notices with regard to professional matters
9. Solicit clients or professional work directly or indirectly by circular/advertisement/personal communication/interview / by any other means.

10.  Advertise professional attainments or services or uses any designation other than professional documents/visiting card/letter heads/sign board.
11. Allows his/her name to be inserted in any directory  in a leaded type or other manner which could be regarded as of an advertising character.
12. Certifies any documents, exhibits, statement, schedules or other form of accounting work which have not been verified under supervision of himself/staff/partner/other member of the institute
13. Give estimates of future profit or certifies a public statement of average profits over a period more than 2 years without the same time stating the profit or loss for each year separately
14. Offer or accept in respect of any professional engagement, fees based on percentage of profits, findings or result except required by law
15. Engage in any business or occupation unless permitted by council ie: non compliance of 210.
16. Allows a person other than his/her partner to sign on his behalf in any Balance Sheet, P&L account, report, or any other document required by the client
17. Disclose confidential information without the consent of client unless it is required by any law
18. Express opinion on financial statements where substantial interest exist but not disclose the interest in the report.
19. Fails to disclose material fact known to him which is not disclosed in the financial statements but disclosure required to avoid misleading the financial statements
20. Fails to report material misstatement known to him of financial statements within professional capacity
21. Showing gross negligence in the conduct of his professional duties.
22. Fails to obtain sufficient information to support the opinion expressed
23. Fails to keep moneys of client in a separate bank account or to use for the purpose which they are intended.
24. Doing any act discreditable to the profession.
25. Contravenes any provision of the order/bye laws
26. not being a fellow style himself as a fellow
27. Does not supply information called for by the council or its committees
28. Fails to invite attention to any material departure from the generally accepted procedures of audit  applicable to the circumstances 
29. Known false information submit to the council
30. Permits to use name his/his firms in connection with an estimate of earnings contingent upon future transaction in a manner which may lead to the belief that he vouches for the accuracy of the forecast.
31. Without first obtaining the permission of the council, promotes any body of accountancy, association or institute of accountancy in Bangladesh.

Explanation

Undercutting:

Charging a smaller fee is not necessarily under-cutting, there may be good reason for it, but deliberately quoting a lower fee with the object of securing work would amount to under-cutting.Any compliant of under-cutting requires to be decided after a careful consideration of the facts and circumstances.

Tender Bids

Council resolution; dated: 29.08.1980

The council did not favor of quoting fees by practicing member for audit job but fee on the basis of approved hourly rate.

It should be clearly pointe out to the appointing authority that the audit fee must not be less than the fee paid to the outgoing auditor. In addition to that CA firms are not permissible to pay earnest money.

Exception:

In case of professional services where members are required to compete with persons who are not members of the institute or render services outside BD, the above restriction shall not be applied. Provided that for service rendered outside BD laws, rules & regulations of that country should be obeyed.

Announcement:

The opening of office, setting up of practices, formation of partnership and changing of address should not be announced in the local press. But only journal of the institute.

It would not, however, be unethical for announcement in public press of the retirements or expulsion of a partner or dissolution of the partnership (to satisfy the requirement of law).

Advertisement:

A Practicing member cannot advertise his services in the press, circularizes clients by writing letters or solicitation of any sort of work.

A member seeking salaried employment may advertisement in the press care of box no. without disclosing name & address.

“ a firm of chartered accountants require senior audit assistants …….”

Name Boards:

It is desired that a name board is readable by an average person with the normal use of eyes. The name board should indicate the name of the firm and the description of “Chartered Accountants’ may be added.

Greeting Cards and other invitation:

Greeting card and other invitations may also be issued by members in which are mentioned the designatory letters of the member but not the name of his firm.

Articles & Letter to the press:

In articles & letter to the press, the name and designatory letters of the member may be published. If he whishes to remain anonymous he may use “chartered accountant”

Professional literature:

In books or any type of professional literature, the member as author may publish his name with designatory letters., but under no circumstances the name of his firm if he is in practice.

Exception: booklets or other type of documents containing technical information for the assistance of their clients.

Talk & Lectures

The member may be introduced to his audience via his own qualification, but if he is in practice, there should be no reference to his firm or any other particulars concerning his practice.

Radio & Television

On the subject of appearance on radio & television the member may referred to by name with his own qualification, but no mention of his firm. However a member in service may mention his employment.

Election

Member seeking election to the National Parliament or other institutions may use the description & designatory letters but not his firm name.

Member not in practice appropriate details may be given of his employment, although member employed by a practicing member should not mention the name of his employer.

Not being a fellow style himself as a fellow

Explanation:

q  Any person who

1.       No being a member of the institute

                                                                                 i.            represent as a member

                                                                               ii.            use designation ACA/FCA

2.       Member but not having a Certificate of practices

                                                                                 i.            Represent as practitioner

Penalties:

a.       First Conviction fine upto taka 1,000.00

b.       Subsequent conviction: upto six month imprisonment or fine tk. 5,000.00 (max) or both.

Thank You