CPE Seminar Paper_Nasir U Ahmed_Code of Ethics for Professional Accountants_21Dec08

7/23/2019 CPE Seminar Paper_Nasir U Ahmed_Code of Ethics for Professional Accountants_21Dec08

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Code of Ethics forProfessional Accountants

Nasir U Ahmed, FCAMember Council, ICAB

21 December 2008

A PresentationA Presentation

BB


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WHAT ARE ETHICS ?

A sense of agreement in a society as to what is right

and wrong.

Ethics reresent a set of moral rinciles! rules ofconduct or "alues.

Ethics aly when an indi"idual has to ma#e adecision from "arious alternati"es regarding moralrinciles.


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$%&ecti"es of Professional

Accountants

wor# to the highest standards of

rofessionalism

attain the highest le"els of erformance! and

meet the u%lic's interest


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e o e o cs ! ! anC*

Part A esta%lishes the fundamental rinciles ofethics for rofessional accountants and ro"ides a

concetual framewor# for alying those rinciles.

Parts ) and C illustrate how the concetualframewor# is to %e alied in seci+c situations.

, Part ) alies to !ro"essional accountants in!ublic !ractice#, Part C alies to !ro"essional accountants in

business#


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I-AC Code o" $thics %fundamentalrinciles for all Accountants

Inte&rit '(ec 110)

*b+ectiit '(ec 120)

Pro"essional Com!etence and Due Care '(ec1-0)

Con.dentialit '(ec 1/0)

Pro"essional Behaior '(ec 10)

Continuation


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Inte&rit The rincile of integrity imoses ano%ligation on all rofessional accountants to %estraightforward and honest in erformingrofessional ser"ices. It also imlies fair dealingand truthfulness.

*b+ectiit The rincile of o%&ecti"ity imoses

on all rofessional accountant not to comromisetheir rofessional or %usiness &udgment %ecauseof %ias! con/ict of interest or undue in/uence ofothers.

Continuation


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Pro"essional Com!etence and Due Care Arofessional accountant has a continuing duty to

maintain rofessional #nowledge and s#ill at thele"el re0uired to ensure that a client or emloyerrecei"es cometent rofessional ser"ice %ased oncurrent de"eloments in ractice! legislation andtechni0ues.

Continuation


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Con.dentialit A rofessional accountant shouldresect the con+dentiality of information ac0uired as

a result of rofessional and %usiness relationshisand should not disclose any such information tothird arties without roer and seci+c authority.

Pro"essional Behaior A rofessional accountant

should comly with rele"ant laws and regulationsand should a"oid any action that discredits therofession.


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Conce!tual Frame3or4A!!roach

A concetual framewor# re0uires a rofessionalaccountant to identify! e"aluate and addressthreats to comliance with the fundamental

rinciles! rather than merely comly with a setof seci+c rules which may %e ar%itrary.

If threats to ethics are not clearly insigni+cant! a

rofessional accountant should alysafeguards to eliminate the threats or reducethem to an acceta%le le"el.


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5hreats and (a"e&uards

Comliance with the fundamental rinciles

may otentially %e threatened %y a %road

range of circumstances. 1any threats fall intothe following categories

Self2interest threats Self2re"iew threats Ad"ocacy threats -amiliarity threats Intimidation threats

Continuation


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Self2Interest ThreatA Self-interest threatoccurs as a result of the+nancial or other interests of a rofessional

accountant or of an immediate or close"amilmem%er3


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Self Interest ThreatsCircumstances

A .nancial interest in a client or &ointly holding a+nancial interest with a client.

4ndue deendence on total fees from a client. Ha"ing a close %usiness relationshi with a client.

Concern a%out the ossi%ility of losing a client.

Potential emloyment with a client.

Contin&ent "ees relating to an engagement.

A loan to or from a client or any of its directors oro5cers.


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Self2Re"iew Threat

Self-Review Threat occurs occur when are"ious &udgment needs to %e re2e"aluated

%y the rofessional accountant resonsi%le forthat &udgment.


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Self2Re"iew ThreatsCircumstances

The disco"ery of a signi+cant error during a re2e"aluation ofthe wor# of the auditor.

Reorting on the oeration of +nancial systems after %eingin"ol"ed in their design or imlementation.

Ha"ing reared the original data used to generate recordsthat are the su%&ect matter of the engagement.

A mem%er of the team %eing! or ha"ing recently %een! adirector or o5cer of that client.

A mem%er of the team %eing! or ha"ing recently %een!emloyed %y the client in a osition to e6ert direct andsigni+cant in/uence o"er the su%&ect matter of theengagement.

Performing a ser"ice for a client that directly a7ects thesu%&ect matter of the engagement.


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Ad"ocacy Threat

An Advocacy Threat occurs when arofessional accountant romotes a osition oroinion to the oint that su%se0uent

o%&ecti"ity may %e comromised.

E6amles of circumstances that createad"ocacy threats

Selling! underwriting or otherwise dealing in

+nancial securities or shares of a client3 Acting as an ad"ocate on %ehalf of a client in

litigation or disutes with third arties.


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-amiliarity Threat

Familiarity Threatoccurs when! %y "irtue of

a close relationshi with a client! its directors!o5cers or emloyees! an auditor %ecomes too

symathetic to the client's interests.


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-amiliarity ThreatsCircumstances

Immediate family mem%er or close family mem%er whois a director! o5cer! or in/uential emloyee of the client3

A mem%er of the team ha"ing a close family mem%er

who! as an emloyee of the client! is in a osition toe6ert direct and signi+cant in/uence o"er the su%&ectmatter of the engagement3

A former artner of the +rm %eing a director! o5cer ofthe client or an emloyee in a osition of signi+cantin/uence3

8ong association of a senior mem%er of the team withthe client

Accetance of gifts or hositality! unless the "alue isclearly insigni+cant! from the client! its directors! o5cersor emloyees.


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Intimidation Threat

Intimidation Threat occur when a rofessionalaccountant may %e deterred from acting o%&ecti"ely

%y threats! either actual or ercei"ed.

E6amles of circumstances

)eing threatened with dismissal or relacement

in relation to a client engagement.)eing threatened with litigation.

)eing ressured to reduce inaroriately thee6tent of wor# erformed in order to reduce fees.


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Safeguards

Safeguards that may eliminate or reduce suchthreats to an acceta%le le"el fall into three%road categories

Safeguards created %y the rofession!legislation or regulation3

Safeguards within the client3 and Safeguards within the +rm's own systems and

rocedures.


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Safeguards within the Client

When the client's management aoints the +rm!ersons other than management ratify or aro"e the

aointment3 The client has cometent emloyees to ma#e

managerial decisions3

Policies and rocedures that emhasi9e the client's

commitment to fair +nancial reorting3 A cororate go"ernance structure! such as an audit

committee! that ro"ides aroriate o"ersight andcommunications regarding a +rm's ser"ices.


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Safeguards in the wor# en"ironment

leadershi that stresses the imortance of indeendenceand the e6ectation that mem%ers of the teams will act inthe u%lic interest.

Policies and rocedures to imlement and monitor 0ualitycontrol of the engagements3

:ocumented indeendence olicies regarding theidenti+cation of threats to indeendence! the e"aluation ofthe signi+cance of these threats and the identi+cation and

alication of safeguards to eliminate or reduce the threats!other than those that are clearly insigni+cant! to anacceta%le le"el3


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Resolution of EthicalCon/icts

If the matter remains unresol"ed! the rofessionalaccountant should consult with other aroriateersons within the +rm

Where a matter in"ol"es a con/ict with! or within!an organi9ation! consult with those charged withgo"ernance of the organi9ation! such as the %oardof directors or the audit committee.

If a signi+cant con/ict cannot %e resol"ed! o%tainrofessional ad"ice from the rele"ant rofessional

%ody or legal ad"isors. If! after e6hausting all rele"ant ossi%ilities! the

ethical con/ict remains unresol"ed! a rofessionalaccountant should! where ossi%le! refuse to remainassociated with the matter creating the con/ict.


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Professional Aointment

Client Accetance2 consider whetheraccetance would create any threats tocomliance with the fundamental rinciles

Engagement Accetance% agree to ro"ideonly those ser"ices that the accountant iscometent to erform.


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Chan&es in a Pro"essionalA!!ointment

)efore acceting an aointment in"ol"ingser"ices that were carried out %y another! theroosed auditor should

Re0uest ermission from the client to contactformer auditor directly3

Contact e6isting auditor %efore %eginning

audit.


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Information from E6istingAuditor

$nce the client ermission is o%tained! thee6isting auditor should ro"ide informationhonestly and unam%iguously.

If the roosed auditor is una%le to communicatewith the e6isting auditor! the roosed auditorshould try to o%tain information a%out anyossi%le threats %y other means such as throughin0uiries of third arties or %ac#groundin"estigations on senior management.

The e6isting auditor is no longer re0uired toro"ide information in writing or regardingreasons not to ta#e an audit.


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Con6icts o" Interest

A rofessional accountant in ractice should ta#ereasona%le stes to identify circumstances that

could ose a con/ict of interest. Suchcircumstances may gi"e rise to threats tocomliance with the fundamental rinciles


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Second $inions

Pro"iding a second oinion on the alication ofaccounting! auditing! reorting or other standardsor rinciles %y or on %ehalf of a comany that is

not an e6isting client may cause threats tocomliance with the fundamental rinciles.

Safeguards such as see#ing client ermission tocontact the e6isting auditor! descri%ing thelimitations surrounding any oinion and ro"iding

the e6isting auditor with a coy of the oinion may%e re0uired.


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Fees and *ther 5!es o"7emuneration

An auditor may 0uote whate"er fee deemed to%e aroriate. Howe"er! a self2interest threatto rofessional cometence and due care is

created if the fee 0uoted is so low that it may%e di5cult to erform the engagement.


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Commissions! Referral -ees! andContingent -ees

A rofessional accountant in u%lic racticeshould not ay or recei"e a referral fee or

commission! unless he;she has esta%lishedsafeguards to eliminate the threats or reducethem to an acceta%le le"el.

Contingent fees are widely used for certain

tyes of non2assurance engagements. Theymay! howe"er! gi"e rise to self2interest threatsto comliance with the fundamental rinciles.


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Ad"ertising and 1ar#eting

When a rofessional accountant in u%licractice solicits new wor# through ad"ertising orother forms of mar#eting! there may %e otential

threats to comliance with the fundamentalrinciles.


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What Ad"ertising Cannot :o

A rofessional accountant should not %ring therofession into disreute when mar#etingrofessional ser"ices. He;she should %e honest

and truthful and should not 1a#e e6aggerated claims for ser"ices o7ered!

0uali+cations ossessed or e6erience gained3 or

1a#e disaraging references to unsu%stantiated

comarisons to the wor# of another.


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i"ts and 9os!italit

Self2interest threats to o%&ecti"ity may %e createdif a gift from a client is acceted3 intimidationthreats to o%&ecti"ity may result from the

ossi%ility of such o7ers %eing made u%lic.


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Custody of Client Assets

Safeguard against a self2interest threat to o%&ecti"ity !a rofessional accountant in u%lic ractice entrustedwith money (or other assets* %elonging to others

should =ee such assets searately from ersonal or +rm

assets3 and 4se such assets only for the urose for which they

are intended. At all times! %e ready to account for those assets!

and any income! di"idends or gains generated. Comly with all rele"ant laws and regulations

rele"ant to the holding of and accounting for suchassets.

A li ti " F 4 t


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A!!lication o" Frame3or4 to(!eci.c (ituations

The Code of Ethics! discusses a rinciles2%asedframewor# for identifying! e"aluating andresonding to threats. The framewor#

esta%lishes rinciles to identify threatsto ethicsrinciles! e"aluate the signi+cance of thosethreats! and! if the threats are other than clearlyinsigni+cant! identify and aly safeguards toeliminate the threats or reduce them to anacceta%le le"el.


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An accountant may erform ser"ices in a countryother than his home country. If di7erences e6ist%etween ethical re0uirements of the two

countries! the strictest ro"isions should %ealied.

Cross%Border Actiities


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The I-AC Code rohi%its the followingnon2audit ser"ices for audit clients

Boo44ee!in& (erices :aluation serices

Mana&ement decision ma4in& "unctions Bro4er%dealer or inestment adisor serices ;iti&ation su!!ort


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-inancial in"ol"ement with aclient

direct +nancial interest in a client3

indirect material +nancial interest

loans to or from the client or anydirector or ma&or stoc#holder inthe client comany3

+nancial interest in a &oint"enture with a client or

emloyee(s* of a client. +nancial interest in non2client

with in"estor or in"esteerelationshi with the client.

R i%iliti R di th 4 f


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Resonsi%ilities Regarding the 4se of>on2Accountants

If a rofessional accountant does not ha"e thecometence to erform a seci+c art of therofessional ser"ice! technical ad"ice may %esought from e6erts such as other rofessionalaccountants! lawyers! actuaries! engineers!geologists! and e"aluators. Howe"er! since theauditors ha"e ultimate resonsi%ility for the

ser"ice! it is his resonsi%ility to see that there0uirements of ethical %eha"ior are followed.


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Acti"ities Incomati%le with thePractice of Pu%lic Accountancy

A rofessional accountant in u%lic racticeshould not concurrently engage in any %usiness!occuation or acti"ity that imairs or might

imair integrity! o%&ecti"ity or indeendence! orthe good reutation of the rofession. The simultaneous engagement in another acti"ity

unrelated to assurance or accounting ser"ices!which reduces the accountant's a%ility to conduct

his accounting ractice according to ethicalrinciles! is inconsistent with u%lic ractice.


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PROFESSIONAL

ACCOUNTANTS-IN SERVICE

Con/ict of 8oyalties


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Con/ict of 8oyalties

Emloyed rofessional accountants owe a duty ofloyalty to their emloyer as well as to theirrofession and there may %e times when the two

are in con/ict. An emloyee cannot legitimately %e re0uired to

%rea# the law! %reach the ethics! rules! andstandards of the accounting rofession! lie to theiremloyer's auditors! or %e associated with a

statement that materially misreresents the facts. If emloyed accountants cannot resol"e any

material issue in"ol"ing a con/ict %etween theiremloyers and their rofessional re0uirementsthey may ha"e no other recourse %ut to resign.


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Suort for Professional Colleaguesand Professional Cometence

Suort for Professional ColleaguesA rofessionalaccountant! articularly one ha"ing authority o"erothers! should allow them to de"elo their own

&udgment in accounting matters. Professional CometenceAn accountant emloyed

in industry! commerce! the u%lic sector oreducation may %e as#ed to underta#e signi+canttas#s for which she has not had su5cient seci+c

training or e6erience. Where aroriate e6ertad"ice and assistance should %e sought.


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Presentation of Information

A rofessional accountant is e6ected toresent +nancial information fully! honestlyand rofessionally and so that it will %e

understood in its conte6t.

y


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ysanctions

:iscilinary action ordinarily arises from suchissues as failure to o%ser"e the re0uired standard of rofessional

care! s#ills or cometence3 non2comliance with rules of ethics and discredita%le3

or dishonora%le conduct.

Sanctions commonly imosed %y discilinary%odies include rerimand! +ne! ayment of costs! withdrawal of

racticing rights! susension! and e6ulsion frommem%ershi.


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CPE Seminar Paper_Nasir U Ahmed_Code of Ethics for Professional Accountants_21Dec08

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