Codes Of Professional Ethics Flashcards
Why is ethics important to accountants?
Hold position of trust
With investors, managers, employees, banks and other stakeholders relying on their work
2 things ethical codes aim to do
- Ensure accountants act professionally
- Help profession act in public interest
(By regulation)
Consequence of accountant not following ethical standards
Disciplinary action
General sources of ethical guidance
Most professional bodies
Who do ethical guidance apply to?
All members
Not just those in practice
Ethical codes applicable to ICAEW accountants
- IFAC code of ethics
/IESBA code of ethics for professional accountants - ICAEW code of ethics
- FRC ethical standard
IFAC
International Federation of Accounts
Ethical body of the IFAC
IESBA
IESBA
International Ethics Standard Board for Accountants
Who does the ICAEW code also apply to?
Trainees
Volunteers
Who does the FRC ethical standard apply to?
UK Auditors
What approach do most professional bodies have to ethics?
Principles based
including IESBA, ICAEW, FRC
Who does the IESBA ethical code apply to?
All professional accountants
IESBA five ethical principles
- Integrity
- Objectivity
- Professional competence and due care
- Confidentiality
- Professional behaviour
Integrity
Straightforward
Honest
In all professional and business relationships
Objectivity
No bias
Or conflict of interest
In business judgements
Professional competence and due care
Maintain professional knowledge
And skill
At an appropriate level
And follow professional standards
Confidentiality
Not disclosing info on clients
Without appropriate authority
Or used for personal advantage
Professional behaviour
Comply with relevant laws
Avoid actions that would discredit the profession
Assurance providers: Independence
Should be, and be seen to be, independent
Independence
State of mind
That permits the expression of a conclusion
Without being affected by influences
That compromise professional judgement
IESBA approach to independence issues
- Identify threats
- Evaluate significance
- Identify
And apply
Standards
Safeguards
Steps taken to eliminate the threat
Or reduce it to an adequate level
What should the accountant do if there are no safeguards available?
- Eliminate interest
Or activities
Causing the threat - If this is not possible:
Decline or discontinue the engagement
FRC 5 general sources of threat to independence
- Self-internet
- Self-review
- Familiarity
- Advocacy
- Intimidation
Self interest
Of the audit firm
E.g. owning shares in client
Self review
By others in the audit firm
E.g. Auditing FS prepared by the audit firm
Familiarity
Of work done by the audit client
E.g. close family working in client’s accounts department
Advocacy
Takes management’s side
E.g. promoting client’s shares in a share issue
Intimidation
Influenced by fear
E.g. client threatens auditor
IESBA 2 categories of general safeguards for independence
- Safeguards created by profession, legislation or regulation
- Safeguards within the work environment
Safeguards created by the profession, legislation or regulation examples
Education and training
CPD requirements
Corporate governance regulations
Professional standards
Monitoring of progressional work e.g. disciplinary proceedings
External reviews
Safeguards within the work environment examples
Review procedures
Consultations with independent 3Ps
Rotation of senior staff
Discussions with governance
Disclosing fees and services to governance
What does the ICAEW code incorporate?
IESBA code
But also contains additional rules deemed appropriate by the ICAEW
What will the FRC be replaced by in 2023?
ARGA
ARGA
Audit, Reporting, and Governance Authority
FRC additional threat to independence
Management
Management threat to independence
Closely aligned with client management
E.g. implementing accounting IT systems for a client
