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KEY PRINCIPLES.
E N D
1. Alisa Hotel, North Ridge 17 MARCH 2011
Presenter:
Kwadwo Mpeani Brantuo
Partner, Ernst & Young
INSTITUTE OF CHARTERED ACCOUNTANTS, GHANA INDUCTION COURSE ON THE CODE OF ETHICS FOR Professional Accountants
2. KEY PRINCIPLES
The higher the Monkey climbs, the more its buttocks are exposed.
Proverb from Malawi
3. KEY PRINCIPLES
If I had eight hours to chop down a tree, Id spend six sharpening my axe.
Abraham Lincoln
4. KEY PRINCIPLES
If your foot slips, you can recover your balance. If your tongue slips, you cannot recover your words.
The spoken word is like a stone, once it is thrown, it cannot be retrieved.
[Ghanaian proverbs]
5. AGENDA
Introduction
General Application of IFAC Code of Ethics
Professional Accountants in Public Practice
Professional Accountants in Business and the Public Sector
6. Introduction - International Trends Legislation/Standards
Sarbanes-Oxley requires more focus on ethics and not merely control (more work with internal control and underlying ethical behaviour)
New and similar legislation in Germany, France, Denmark
European Union has given notice of new rules which bring its requirements closer to those of Sarbanes-Oxley
Basel II committee has formulated a number of recommendations about good management within Ethics and Compliance
U.S. Congress is reviewing regulatory framework following recent global financial crisis and corporate collapses.
Changes in Insurance
Increased insurance premiums to Executive and Supervisory Boards as well as new requirements for Supervisory Boards
Standards for Business Conduct and Ethical behaviour.
A leader with the responsibility for complying with relevant legislation and standards of business conduct should be appointed and report to the Board.
7. Introduction (contd) - International Trends
High Profile Events
Ousting of Boeing CEO
Bernhard Ebbers of WorldCom found guilty on 9 counts including conspiracy faces up to 85 years in prison
Tyco/Enron cases
What other marketplace forces are out there putting pressure on firms to ensure integrity, quality, transparency in their processes?
Regulatory
Legal
Client
Social
8. Introduction (contd) - U.S. Federal Sentencing Guidelines
November 2004
Amendments to Chapter 8: Sentencing Guidelines for Organizations
2 Key Factors mitigate the ultimate punishment of an organization
Existence of an effective compliance and ethics program
Self reporting, cooperation, acceptance of responsibility
The focus is on promoting an organizational culture that encourages ethical conduct and a commitment to compliance with the law
The auditors became identified with large audit clients and hence the strong desire to maintain clients; audit personnel even forward to joining clients as a possible future career path
Growing conflicts between serving the management team and maintaining the interest of the shareholders were recognized but not reinforced with ethical principles
Lack of ethical culture from top management
Flaw in internal controls for quality audit audit partner overriding other reviews
Incompetence
Judgment errors as to the significance of audit findings
Lack of supporting information for audits and failure to follow up
Misunderstanding of fundamental fiduciary duties of auditorsThe auditors became identified with large audit clients and hence the strong desire to maintain clients; audit personnel even forward to joining clients as a possible future career path
Growing conflicts between serving the management team and maintaining the interest of the shareholders were recognized but not reinforced with ethical principles
Lack of ethical culture from top management
Flaw in internal controls for quality audit audit partner overriding other reviews
Incompetence
Judgment errors as to the significance of audit findings
Lack of supporting information for audits and failure to follow up
Misunderstanding of fundamental fiduciary duties of auditors
9. GENERAL APPLICATION OF THE IFAC CODE OF ETHICS
10. The IFAC Ethics Code The Code is in three parts as follows:
Part A establishes the fundamental principles of professional ethics for Professional Accountants and provides a conceptual framework for applying those principles.
Parts B and C illustrate how the conceptual framework is to be applied in specific situations. Part B applies to professional
accountants in public practice. Part C applies to Professional Accountants in business.
11. Agenda
Mission of IFAC
The importance of ethics
Fundamental principles
Conceptual framework
Threats and safeguards
12. Mission of the International Federation of Accountants To serve the public interest, IFAC will continue to strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high-quality professional standards, furthering the international convergence of such standards and speaking out on public interest issues where the professions expertise is most relevant. Mission of the International Federation of Accountants
To serve the public interest, IFAC will continue to strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high-quality professional standards, furthering the international convergence of such standards and speaking out on public interest issues where the professions expertise is most relevant.
In pursuing this mission, the IFAC Board has established the IFAC Ethics Committee to develop and issue, under its own authority, high quality ethical standards and other pronouncements for Professional Accountants for use around the world.
Mission of the International Federation of Accountants
To serve the public interest, IFAC will continue to strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high-quality professional standards, furthering the international convergence of such standards and speaking out on public interest issues where the professions expertise is most relevant.
In pursuing this mission, the IFAC Board has established the IFAC Ethics Committee to develop and issue, under its own authority, high quality ethical standards and other pronouncements for Professional Accountants for use around the world.
13. Mission of the International Federation of Accountants (Contd /2) The Code of Ethics of the International Federation of Accountants establishes ethical requirements for Professional Accountants.
A member body of IFAC or firm may not apply less stringent standards than those stated in this Code. However, if a member body or firm is prohibited from complying with certain parts of this Code by law or regulation, they should comply with all other parts of this Code. Mission of the International Federation of Accountants (Contd /2)
The Code of Ethics of the International Federation of Accountants establishes ethical requirements for Professional Accountants.
A member body of IFAC or firm may not apply less stringent standards than those stated in this Code. However, if a member body or firm is prohibited from complying with certain parts of this Code by law or regulation, they should comply with all other parts of this Code.
Some jurisdictions may have requirements and guidance that differ from this Code. Professional Accountants should be aware of those differences and comply with the more stringent requirements and guidance unless prohibited by law or regulation.
Mission of the International Federation of Accountants (Contd /2)
The Code of Ethics of the International Federation of Accountants establishes ethical requirements for Professional Accountants.
A member body of IFAC or firm may not apply less stringent standards than those stated in this Code. However, if a member body or firm is prohibited from complying with certain parts of this Code by law or regulation, they should comply with all other parts of this Code.
Some jurisdictions may have requirements and guidance that differ from this Code. Professional Accountants should be aware of those differences and comply with the more stringent requirements and guidance unless prohibited by law or regulation.
14. Mission of the International Federation of Accountants (Contd /2)
Know and accept your own strengths and weaknesses. In other words; look at yourself honestly . Understand your passions, your skills, your temperament, and your limitations. If youre a square peg, no matter how hard you or others work try, youre just NOT going to fit very well into a round hole.
[Katie Couric] Mission of the International Federation of Accountants (Contd /2)
The Code of Ethics of the International Federation of Accountants establishes ethical requirements for Professional Accountants.
A member body of IFAC or firm may not apply less stringent standards than those stated in this Code. However, if a member body or firm is prohibited from complying with certain parts of this Code by law or regulation, they should comply with all other parts of this Code.
Some jurisdictions may have requirements and guidance that differ from this Code. Professional Accountants should be aware of those differences and comply with the more stringent requirements and guidance unless prohibited by law or regulation.
Mission of the International Federation of Accountants (Contd /2)
The Code of Ethics of the International Federation of Accountants establishes ethical requirements for Professional Accountants.
A member body of IFAC or firm may not apply less stringent standards than those stated in this Code. However, if a member body or firm is prohibited from complying with certain parts of this Code by law or regulation, they should comply with all other parts of this Code.
Some jurisdictions may have requirements and guidance that differ from this Code. Professional Accountants should be aware of those differences and comply with the more stringent requirements and guidance unless prohibited by law or regulation.
15. What do we mean by ETHICS Read the slideRead the slide
16. The Importance of Ethics
17. The Importance of Ethics (contd) Benefits of Managing Ethics in the Workplace Attention to business ethics has substantially improved society.
Ethics programs help maintain a moral course in turbulent times.
Ethics programs cultivate strong teamwork and productivity.
Ethics programs support employee growth and meaning
Ethics programs are an insurance policy -- they help ensure that policies are legal.
Ethics programs help avoid criminal acts of omission and can lower fines.
Ethics programs help manage values associated with quality management, strategic planning and diversity management.
Ethics programs promote a strong public image. managing ethical values in the workplace legitimizes managerial actions, strengthens the coherence and balance of the organizations culture, improves trust in relationships between individuals and groups, supports greater consistency in standards and qualities of products, and cultivates greater sensitivity to the impact of the enterprises values and messages.
18. IFAC Fundamental Principles
A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest.
Therefore, a Professional Accountants responsibility is not exclusively to satisfy the needs of an individual client or employer. In acting in the public interest a Professional Accountant should observe and comply with defined ethical requirements.
19. IFAC Fundamental Principles We hereby re-emphasis that a distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. The Professional Accountant's responsibility is therefore NOT exclusively to satisfy the needs of an individual client or employer but to act in the public interest.
20. IFAC Fundamental Principles To ensure that this is achieved, the Professional Accountant should observe and abide by the ethical requirements of the International Federation of Accountants (IFAC) Code of ethics. IFACs is a global organization with a mission that concerns the integrity and expertise of the accounting profession worldwide and in Ghana the mission is represented by the Institute of Chartered Accountants (Ghana).
21. IFAC Fundamental Principles What is Professionalism?
Professionalism is defined as the active demonstration of the traits of a professional.
These traits include: knowledge and skills of the profession, commitment to self-improvement of skills and knowledge, service orientation, pride in the profession, covenantal relationship with client, creativity and innovation, conscience and trustworthiness, accountability for his or her work, ethically sound decision making and leadership. Professional development would then be the process in which a person develops these traits.
22. IFAC Fundamental Principles
In essence, Professionalism is the WILLINGNESS TO DO THE RIGHT THING.
The IFAC Code of Ethics was adopted by Ghana on 30 June 2006.
23. IFAC Fundamental principles (contd /2)
A Professional Accountant is required to comply with the following fundamental principles:
(a) INTEGRITY,
(b) OBJECTIVITY,
(c) PROFESSIONAL COMPETENCE AND DUE CARE,
(d) CONFIDENTIALITY, and
(e) PROFESSIONAL BEHAVIOR.
Fundamental Principles
A Professional Accountant is required to comply with the following fundamental principles:
(a) Integrity
A Professional Accountant should be straightforward and honest in all professional and business relationships.
(b) Objectivity
A Professional Accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgments.
(c) 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 practice, legislation and techniques. A Professional Accountant should act diligently and in accordance with applicable technical and professional standards when providing professional services.
(d) Confidentiality
A Professional Accountant should respect the confidentiality of information acquired as a result of professional and business relationships and 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. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of the Professional Accountant or third parties.
(e) Professional Behavior
A Professional Accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession.
Fundamental Principles
A Professional Accountant is required to comply with the following fundamental principles:
(a) Integrity
A Professional Accountant should be straightforward and honest in all professional and business relationships.
(b) Objectivity
A Professional Accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgments.
(c) 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 practice, legislation and techniques. A Professional Accountant should act diligently and in accordance with applicable technical and professional standards when providing professional services.
(d) Confidentiality
A Professional Accountant should respect the confidentiality of information acquired as a result of professional and business relationships and 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. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of the Professional Accountant or third parties.
(e) Professional Behavior
A Professional Accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession.
24. Fundamental principles (contd /3)
(a) Integrity
A Professional Accountant should be straightforward and honest in all professional and business relationships.
(b) Objectivity
A Professional Accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgments.
(c) Professional Competence and Due Care
A Professional Accountant has a continuing duty to maintain professional knowledge and skill and act diligently and in accordance with applicable technical and professional standards.
25. Fundamental principles (contd /3)
(d) Confidentiality
A Professional Accountant should respect the confidentiality of information. Confidential information should not be used for the personal advantage of the Professional Accountant or third parties.
(e) Professional Behavior
A Professional Accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession and our dear Institute of Chartered Accountants, Ghana.
(ICAG).
26. Conceptual Framework
The conceptual framework requires a Professional Accountant to identify, evaluate and address threats to compliance with the fundamental principles, rather than merely comply with a set of specific rules.
The circumstances in which Professional Accountants operate may give rise to specific threats to compliance with the fundamental principles.
A Professional Accountant has an obligation to evaluate any threats to compliance with the fundamental principles when the Professional Accountant knows, or could reasonably be expected to know, of circumstances or relationships that may compromise compliance with the fundamental principles.
A Professional Accountant is therefore expected to take qualitative as well as quantitative factors into account when considering the significance of a threat. If a Professional Accountant cannot implement appropriate safeguards, the Professional Accountant should decline or discontinue the specific professional service involved, or where necessary resign from the client (in the case of a Professional Accountant in public practice) or the employing organization (in the case of a Professional Accountant in business).
A Professional Accountant has an obligation to evaluate any threats to compliance with the fundamental principles when the Professional Accountant knows, or could reasonably be expected to know, of circumstances or relationships that may compromise compliance with the fundamental principles.
A Professional Accountant is therefore expected to take qualitative as well as quantitative factors into account when considering the significance of a threat. If a Professional Accountant cannot implement appropriate safeguards, the Professional Accountant should decline or discontinue the specific professional service involved, or where necessary resign from the client (in the case of a Professional Accountant in public practice) or the employing organization (in the case of a Professional Accountant in business).
27. Threats and Safeguards
Threats fall into the following general categories:
(a) Self-interest threats;
(b) Self-review threats;
(c) Advocacy threats;
(d) Familiarity threats; and
(e) Intimidation threats.
Threats and Safeguards Threats fall into the following general categories:
(a) Self-interest threats, which may occur as a result of the financial or other interests of a Professional Accountant or of an immediate or close family* member;
(b) Self-review threats, which may occur when a previous judgment needs to be reevaluated by the Professional Accountant responsible for that judgment;
(c) Advocacy threats, which may occur when a Professional Accountant promotes a position or opinion to the point that subsequent objectivity may be compromised;
(d) Familiarity threats, which may occur when, because of a close relationship, a Professional Accountant becomes too sympathetic to the interests of others; and
(e) Intimidation threats, which may occur when a Professional Accountant may be deterred from acting objectively by threats, actual or perceived.
Threats and SafeguardsThreats fall into the following general categories:
(a) Self-interest threats, which may occur as a result of the financial or other interests of a Professional Accountant or of an immediate or close family* member;
(b) Self-review threats, which may occur when a previous judgment needs to be reevaluated by the Professional Accountant responsible for that judgment;
(c) Advocacy threats, which may occur when a Professional Accountant promotes a position or opinion to the point that subsequent objectivity may be compromised;
(d) Familiarity threats, which may occur when, because of a close relationship, a Professional Accountant becomes too sympathetic to the interests of others; and
(e) Intimidation threats, which may occur when a Professional Accountant may be deterred from acting objectively by threats, actual or perceived.
28. Threats and Safeguards (contd /2) Safeguards that may eliminate or reduce such threats to an acceptable level fall into two broad categories:
Safeguards created by the profession, legislation or regulation; and
Safeguards in the work environment.
29. Threats and Safeguards (contd /3)
Safeguards created by the profession, legislation or regulation include, but are not restricted to:
Educational, training and experience requirements for entry into the profession.
Continuing professional development requirements.
Corporate governance regulations.
Professional standards.
Professional or regulatory monitoring and disciplinary procedures.
External review by a legally empowered third party of the reports, returns, communications or information produced by a Professional Accountant.
30. Threats and Safeguards (contd /4)
Safeguards, which may be created by an employing organization or in the work environment, include, but are not restricted to:
Effective, well publicized complaints systems operated by the employing organization, the profession or a regulator, which enable colleagues, employers and members of the public to draw attention to unprofessional or unethical behavior; and
An explicitly stated duty to report breaches of ethical requirements. Safeguards, which may be created by the accounting profession, legislation, regulation or an employing organization, include, but are not restricted to:
Effective, well publicized complaints systems operated by the employing organization, the profession or a regulator, which enable colleagues, employers and members of the public to draw attention to unprofessional or unethical behavior; and
An explicitly stated duty to report breaches of ethical requirements.
The nature of the safeguards to be applied will vary depending on the circumstances. In exercising professional judgment, a Professional Accountant should consider what a reasonable and informed third party, having knowledge of all relevant information, including the significance of the threat and the safeguards applied, would conclude to be unacceptable.
Safeguards, which may be created by the accounting profession, legislation, regulation or an employing organization, include, but are not restricted to:
Effective, well publicized complaints systems operated by the employing organization, the profession or a regulator, which enable colleagues, employers and members of the public to draw attention to unprofessional or unethical behavior; and
An explicitly stated duty to report breaches of ethical requirements.
The nature of the safeguards to be applied will vary depending on the circumstances. In exercising professional judgment, a Professional Accountant should consider what a reasonable and informed third party, having knowledge of all relevant information, including the significance of the threat and the safeguards applied, would conclude to be unacceptable.
31. Threats and Safeguards (contd /4) Who is a BIG MAN?
Really Big People are, above everything else, courteous, considerate and generous not just to some people in some circumstances but to everyone all the time.
Thomas J Watson Safeguards, which may be created by the accounting profession, legislation, regulation or an employing organization, include, but are not restricted to:
Effective, well publicized complaints systems operated by the employing organization, the profession or a regulator, which enable colleagues, employers and members of the public to draw attention to unprofessional or unethical behavior; and
An explicitly stated duty to report breaches of ethical requirements.
The nature of the safeguards to be applied will vary depending on the circumstances. In exercising professional judgment, a Professional Accountant should consider what a reasonable and informed third party, having knowledge of all relevant information, including the significance of the threat and the safeguards applied, would conclude to be unacceptable.
Safeguards, which may be created by the accounting profession, legislation, regulation or an employing organization, include, but are not restricted to:
Effective, well publicized complaints systems operated by the employing organization, the profession or a regulator, which enable colleagues, employers and members of the public to draw attention to unprofessional or unethical behavior; and
An explicitly stated duty to report breaches of ethical requirements.
The nature of the safeguards to be applied will vary depending on the circumstances. In exercising professional judgment, a Professional Accountant should consider what a reasonable and informed third party, having knowledge of all relevant information, including the significance of the threat and the safeguards applied, would conclude to be unacceptable.
32. Professional AccountantS IN PUBLIC PRACTICE
33.
It takes 20 years to build a reputation and 5 minutes to ruin it. If you think about that you will do things differently.
Warren Buffett
34.
Goodwill like a good name
is got by many actions,
and lost by one.
Lord Jeffrey
17731850, Scottish critic and judge
35. The complexity of our business and our network of stakeholders has grown significantly and all professional firms are being scrutinized from all sides.
Client and regulatory requirements are stronger than ever.
Media and governments are playing a key role in helping to ensure the integrity of businesses.
Our communities and recruits are listening and increasing their expectations on our interactions with them
Today we have increasing responsibilities to meet stakeholder demands, rebuild trust in the capital markets and at the same time, protect and enhance our professional and corporate brands. The complexity of our business and our network of stakeholders has grown significantly and all professional firms are being scrutinized from all sides.
Client and regulatory requirements are stronger than ever.
Media and governments are playing a key role in helping to ensure the integrity of businesses.
Our communities and recruits are listening and increasing their expectations on our interactions with them
Today we have increasing responsibilities to meet stakeholder demands, rebuild trust in the capital markets and at the same time, protect and enhance our professional and corporate brands.
36. AGENDA
Introduction
Professional Appointments
Conflicts of Interest
Second Opinions
Fees and Other Types of Remuneration
Marketing Professional Services
Gifts and Hospitality
Custody of Client Assets
ObjectivityAll Services
IndependenceAssurance Engagements
37. Introduction
A Professional Accountant in practice should not engage in activity that might impair integrity, objectivity and the good reputation of the profession.
Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances.
The nature and significance of the threats may differ depending on the nature of the professional engagement. This Section illustrates how the conceptual framework is to be applied by Professional Accountants in public practice.
A Professional Accountant in public practice should not 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 rendering of professional services.
Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances (as discussed previously).
The nature and significance of the threats may differ depending on whether they arise in relation to the provision of services to a financial statement audit client*, a non financial statement audit assurance client* or a non-assurance client.
This Section illustrates how the conceptual framework is to be applied by Professional Accountants in public practice.
A Professional Accountant in public practice should not 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 rendering of professional services.
Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances (as discussed previously).
The nature and significance of the threats may differ depending on whether they arise in relation to the provision of services to a financial statement audit client*, a non financial statement audit assurance client* or a non-assurance client.
38. Professional challenges Some challenging situations members of a professional services firm could face include: Cosy relationships Copyright
Billing issues ?
Avoiding/evading tax ?
Sideline business ?
Conflict of interest ?
Investments in clients ?
Confidentiality ?
Client gifts ?
Gender discrimination ?
Excessive revenue targets ?
39. Professional Appointments
Client Acceptance.
Engagement Acceptance.
Changes in a Professional Appointment.
KEY CONSIDERATIONS ARE AS FOLLOWS:
Client Acceptance
Engagement Acceptance
Changes in a Professional Appointment
KEY CONSIDERATIONS ARE AS FOLLOWS:
Client Acceptance
Engagement Acceptance
Changes in a Professional Appointment
40. Professional Appointments (contd) - Client Acceptance considerations
Identify potential threats to compliance with the fundamental principles;
Evaluate significance of any threats identified and apply safeguards to eliminate or reduce threat to an acceptable level.
Where it is not possible to reduce the threats to an acceptable level, a Professional Accountant should decline to enter into the client relationship.
Acceptance decisions should also be periodically reviewed for recurring client engagements.
Before accepting a new client relationship, a Professional Accountant in public practice should consider whether acceptance would create any threats to compliance with the fundamental principles. Potential threats to integrity or professional behavior may be created from, for example, questionable issues associated with the client (its owners, management and activities).
Client issues that, if known, could threaten compliance with the fundamental principles
include, for example, client involvement in illegal activities (such as money laundering), dishonesty or questionable financial reporting practices.
The significance of any threats should be evaluated. If identified threats are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level.
Appropriate safeguards may include obtaining knowledge and understanding of the client, its owners, managers and those responsible for its governance and business activities, or securing the clients commitment to improve corporate governance practices or internal controls.
Where it is not possible to reduce the threats to an acceptable level, a Professional Accountant in public practice should decline to enter into the client relationship.
Acceptance decisions should be periodically reviewed for recurring client engagements.
Before accepting a new client relationship, a Professional Accountant in public practice should consider whether acceptance would create any threats to compliance with the fundamental principles. Potential threats to integrity or professional behavior may be created from, for example, questionable issues associated with the client (its owners, management and activities).
Client issues that, if known, could threaten compliance with the fundamental principles
include, for example, client involvement in illegal activities (such as money laundering), dishonesty or questionable financial reporting practices.
The significance of any threats should be evaluated. If identified threats are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level.
Appropriate safeguards may include obtaining knowledge and understanding of the client, its owners, managers and those responsible for its governance and business activities, or securing the clients commitment to improve corporate governance practices or internal controls.
Where it is not possible to reduce the threats to an acceptable level, a Professional Accountant in public practice should decline to enter into the client relationship.
Acceptance decisions should be periodically reviewed for recurring client engagements.
41. Professional Appointments (contd) - Engagement Acceptance
A Professional Accountant in public practice should evaluate the significance of identified threats and, if they are other than clearly insignificant, safeguards should be applied as necessary to eliminate them or reduce them to an acceptable level.
Such safeguards may include:
Understanding the clients business;
Understanding the relevant industries or subject matters.
Possessing or obtaining experience with relevant regulatory or reporting requirements.
Assigning sufficient staff with the necessary competencies.
Using experts where necessary.
Agreeing on a realistic time frame for the performance of the engagement.
Compliance with quality control policies and procedures.
Engagement Acceptance A Professional Accountant in public practice should agree to provide only those services that the Professional Accountant in public practice is competent to perform.
Before accepting a specific client engagement, a Professional Accountant in public practice should consider whether acceptance would create any threats to compliance with the fundamental principles. For example, a self-interest threat to professional competence and due care is created if the engagement team does not possess, or cannot acquire, the competencies necessary to properly carry out the engagement.
A Professional Accountant in public practice should evaluate the significance of identified threats and, if they are other than clearly insignificant, safeguards should be applied as necessary to eliminate them or reduce them to an acceptable level.
Such safeguards may include:
Acquiring an appropriate understanding of the nature of the clients business, the complexity of its operations, the specific requirements of the engagement and the purpose, nature and scope of the work to be performed.
Acquiring knowledge of relevant industries or subject matters.
Possessing or obtaining experience with relevant regulatory or reporting
requirements.
Assigning sufficient staff with the necessary competencies.
Using experts where necessary.
Agreeing on a realistic time frame for the performance of the engagement.
Complying with quality control policies and procedures designed to provide reasonable assurance that specific engagements are accepted only when they can be performed competently.
Engagement AcceptanceA Professional Accountant in public practice should agree to provide only those services that the Professional Accountant in public practice is competent to perform.
Before accepting a specific client engagement, a Professional Accountant in public practice should consider whether acceptance would create any threats to compliance with the fundamental principles. For example, a self-interest threat to professional competence and due care is created if the engagement team does not possess, or cannot acquire, the competencies necessary to properly carry out the engagement.
A Professional Accountant in public practice should evaluate the significance of identified threats and, if they are other than clearly insignificant, safeguards should be applied as necessary to eliminate them or reduce them to an acceptable level.
Such safeguards may include:
Acquiring an appropriate understanding of the nature of the clients business, the complexity of its operations, the specific requirements of the engagement and the purpose, nature and scope of the work to be performed.
Acquiring knowledge of relevant industries or subject matters.
Possessing or obtaining experience with relevant regulatory or reporting
requirements.
Assigning sufficient staff with the necessary competencies.
Using experts where necessary.
Agreeing on a realistic time frame for the performance of the engagement.
Complying with quality control policies and procedures designed to provide reasonable assurance that specific engagements are accepted only when they can be performed competently.
42. Professional Appointments (contd) - Changes in professional appointments
A Professional Accountant replacing another Professional Accountant, should determine whether there are any reasons, professional or other, for not accepting the engagement.
This may require direct communication with the existing Accountant.
An Existing Accountant is bound by confidentiality.
Where the threats cannot be eliminated or reduced to an acceptable level a Professional Accountant should, decline the engagement.
Changes in a Professional Appointment
A Professional Accountant in public practice who is asked to replace another Professional Accountant in public practice, or who is considering tendering for an engagement currently held by another Professional Accountant in public practice, should determine whether there are any reasons, professional or other, for not accepting the engagement, such as circumstances that threaten compliance with the fundamental principles.
Depending on the nature of the engagement, this may require direct communication with the existing accountant to establish the facts and circumstances behind the proposed change so that the Professional Accountant in public practice can decide whether it would be appropriate to accept the engagement.
An existing accountant is bound by confidentiality. The extent to which the Professional Accountant in public practice can and should discuss the affairs of a client with a proposed accountant will depend on the nature of the engagement and on:
(a) Whether the clients permission to do so has been obtained; or
(b) The legal or ethical requirements relating to such communications and disclosure, which may vary by jurisdiction.
Where the threats cannot be eliminated or reduced to an acceptable level through the application of safeguards, a Professional Accountant in public practice should, unless there is satisfaction as to necessary facts by other means, decline the engagementChanges in a Professional Appointment
A Professional Accountant in public practice who is asked to replace another Professional Accountant in public practice, or who is considering tendering for an engagement currently held by another Professional Accountant in public practice, should determine whether there are any reasons, professional or other, for not accepting the engagement, such as circumstances that threaten compliance with the fundamental principles.
Depending on the nature of the engagement, this may require direct communication with the existing accountant to establish the facts and circumstances behind the proposed change so that the Professional Accountant in public practice can decide whether it would be appropriate to accept the engagement.
An existing accountant is bound by confidentiality. The extent to which the Professional Accountant in public practice can and should discuss the affairs of a client with a proposed accountant will depend on the nature of the engagement and on:
(a) Whether the clients permission to do so has been obtained; or
(b) The legal or ethical requirements relating to such communications and disclosure, which may vary by jurisdiction.
Where the threats cannot be eliminated or reduced to an acceptable level through the application of safeguards, a Professional Accountant in public practice should, unless there is satisfaction as to necessary facts by other means, decline the engagement
43. Conflict of interest
A Professional Accountant in public practice should take reasonable steps to identify circumstances that could pose a conflict of interest. Such circumstances may give rise to threats to compliance with the fundamental principles.
Depending upon the circumstances giving rise to the conflict, safeguards should ordinarily include:
(a) Notifying the client of the firms business interest or activities that may represent a conflict of interest, and obtaining their consent to act in such circumstances; or
(b) Notifying all known relevant parties that the Professional Accountant in public practice is acting for two or more parties in respect of a matter where their respective interests are in conflict, and obtaining their consent to so act; or
(c) Notifying the client that the Professional Accountant in public practice does not act exclusively for any one client in the provision of proposed services (for example, in a particular market sector or with respect to a specific service) and obtaining their consent to so act. Conflict of Interest
A Professional Accountant in public practice should take reasonable steps to identify circumstances that could pose a conflict of interest. Such circumstances may give rise to threats to compliance with the fundamental principles.
For example, a threat to objectivity may be created when a Professional Accountant in public practice competes directly with a client or has a joint venture or similar arrangement with a major competitor of a client. A threat to objectivity or confidentiality may also be created when a Professional Accountant in public practice performs services for clients whose interests are in conflict or the clients are in dispute with each other in relation to the matter or transaction in question.
Depending upon the circumstances giving rise to the conflict, safeguards should ordinarily include the Professional Accountant in public practice:
(a) Notifying the client of the firms business interest or activities that may represent a conflict of interest, and obtaining their consent to act in such circumstances; or
(b) Notifying all known relevant parties that the Professional Accountant in public practice is acting for two or more parties in respect of a matter where their respective interests are in conflict, and obtaining their consent to so act; or
(c) Notifying the client that the Professional Accountant in public practice does not act exclusively for any one client in the provision of proposed services (for example, in a particular market sector or with respect to a specific service) and obtaining their consent to so act.
Conflict of Interest
A Professional Accountant in public practice should take reasonable steps to identify circumstances that could pose a conflict of interest. Such circumstances may give rise to threats to compliance with the fundamental principles.
For example, a threat to objectivity may be created when a Professional Accountant in public practice competes directly with a client or has a joint venture or similar arrangement with a major competitor of a client. A threat to objectivity or confidentiality may also be created when a Professional Accountant in public practice performs services for clients whose interests are in conflict or the clients are in dispute with each other in relation to the matter or transaction in question.
Depending upon the circumstances giving rise to the conflict, safeguards should ordinarily include the Professional Accountant in public practice:
(a) Notifying the client of the firms business interest or activities that may represent a conflict of interest, and obtaining their consent to act in such circumstances; or
(b) Notifying all known relevant parties that the Professional Accountant in public practice is acting for two or more parties in respect of a matter where their respective interests are in conflict, and obtaining their consent to so act; or
(c) Notifying the client that the Professional Accountant in public practice does not act exclusively for any one client in the provision of proposed services (for example, in a particular market sector or with respect to a specific service) and obtaining their consent to so act.
44. Conflict of interest (contd /2)
The following additional safeguards should also be considered:
(a) The use of separate engagement teams;
(b) Procedures to prevent access to information (e.g., strict physical separation of such teams, confidential and secure data filing);
(c) Clear guidelines for members of the engagement team on issues of security and confidentiality;
(d) The use of confidentiality agreements signed by employees and partners of the firm; and
(e) Regular review of the application of safeguards by a senior individual not involved with relevant client engagements. Conflict of Interest (contd) The following additional safeguards should also be considered:
(a) The use of separate engagement teams; and
(b) Procedures to prevent access to information (e.g., strict physical separation of such teams, confidential and secure data filing); and
(c) Clear guidelines for members of the engagement team on issues of security and confidentiality; and
(d) The use of confidentiality agreements signed by employees and partners of the firm; and
(e) Regular review of the application of safeguards by a senior individual not involved with relevant client engagements.
Where a conflict of interest poses a threat to one or more of the fundamental principles, including objectivity, confidentiality or professional behavior, that cannot be eliminated or reduced to an acceptable level through the application of safeguards, the Professional Accountant in public practice should conclude that it is not appropriate to accept a specific engagement or that resignation from one or more conflicting engagements is required.
Conflict of Interest (contd) The following additional safeguards should also be considered:
(a) The use of separate engagement teams; and
(b) Procedures to prevent access to information (e.g., strict physical separation of such teams, confidential and secure data filing); and
(c) Clear guidelines for members of the engagement team on issues of security and confidentiality; and
(d) The use of confidentiality agreements signed by employees and partners of the firm; and
(e) Regular review of the application of safeguards by a senior individual not involved with relevant client engagements.
Where a conflict of interest poses a threat to one or more of the fundamental principles, including objectivity, confidentiality or professional behavior, that cannot be eliminated or reduced to an acceptable level through the application of safeguards, the Professional Accountant in public practice should conclude that it is not appropriate to accept a specific engagement or that resignation from one or more conflicting engagements is required.
45. Second opinions
When a Professional Accountant is asked to provide a second opinion that may give rise to threats to compliance with fundamental principles, safeguards should be considered and applied as necessary to eliminate or reduce them to an acceptable level.
Such safeguards may include:
seeking client permission to contact the existing accountant;
describing the limitations surrounding any opinion in communications with the client; and / or
providing the existing accountant with a copy of the opinion.
If the entity seeking the opinion will not permit communication with the existing accountant, the Professional Accountant should consider whether it is appropriate to provide the opinion sought. Second Opinions
Situations where a Professional Accountant in public practice is asked to provide a second opinion on the application of accounting, auditing, reporting or other standards or principles to specific circumstances or transactions by or on behalf of a company or an entity that is not an existing client may give rise to threats to compliance with the fundamental principles.
For example, there may be a threat to professional competence and due care in circumstances where the second opinion is not based on the same set of facts that were made available to the existing accountant, or is based on inadequate evidence. The significance of the threat will depend on the circumstances of the request and all the other available facts and assumptions relevant to the expression of a professional judgment.
When asked to provide such an opinion, a Professional Accountant in public practice should evaluate the significance of the threats and, if they are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level. Such safeguards may include seeking client permission to contact the existing accountant, describing the limitations surrounding any opinion in communications with the client and providing the existing accountant with a copy of the opinion.
If the company or entity seeking the opinion will not permit communication with the existing accountant, a Professional Accountant in public practice should consider whether, taking all the circumstances into account, it is appropriate to provide the opinion sought.
Second Opinions
Situations where a Professional Accountant in public practice is asked to provide a second opinion on the application of accounting, auditing, reporting or other standards or principles to specific circumstances or transactions by or on behalf of a company or an entity that is not an existing client may give rise to threats to compliance with the fundamental principles.
For example, there may be a threat to professional competence and due care in circumstances where the second opinion is not based on the same set of facts that were made available to the existing accountant, or is based on inadequate evidence. The significance of the threat will depend on the circumstances of the request and all the other available facts and assumptions relevant to the expression of a professional judgment.
When asked to provide such an opinion, a Professional Accountant in public practice should evaluate the significance of the threats and, if they are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level. Such safeguards may include seeking client permission to contact the existing accountant, describing the limitations surrounding any opinion in communications with the client and providing the existing accountant with a copy of the opinion.
If the company or entity seeking the opinion will not permit communication with the existing accountant, a Professional Accountant in public practice should consider whether, taking all the circumstances into account, it is appropriate to provide the opinion sought.
46. Fees and other types of remuneration
A Professional Accountant in public practice may quote whatever fee deemed to be appropriate. Nevertheless, there may be threats to compliance with the fundamental principles arising from the level of fees quoted.
Safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level.
Safeguards which may be adopted include:
Making the client aware of the terms of the engagement and, in particular, the basis on which fees are charged and which services are covered by the quoted fee.
Assigning appropriate time and qualified staff to the task.
Fees and Other Types of Remuneration
A Professional Accountant in public practice may quote whatever fee deemed to be appropriate. The fact that one Professional Accountant in public practice may quote a fee lower than another is not in itself unethical. Nevertheless, there may be threats to compliance with the fundamental principles arising from the level of fees quoted.
For example, a self-interest threat to professional competence and due care is created if the fee quoted is so low that it may be difficult to perform the engagement in accordance with applicable technical and professional standards for that price.
The significance of such threats will depend on factors such as the level of fee quoted and the services to which it applies. In view of these potential threats, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level.
Safeguards which may be adopted include:
Making the client aware of the terms of the engagement and, in particular, the basis on which fees are charged and which services are covered by the quoted fee.
Assigning appropriate time and qualified staff to the task.
Fees and Other Types of Remuneration
A Professional Accountant in public practice may quote whatever fee deemed to be appropriate. The fact that one Professional Accountant in public practice may quote a fee lower than another is not in itself unethical. Nevertheless, there may be threats to compliance with the fundamental principles arising from the level of fees quoted.
For example, a self-interest threat to professional competence and due care is created if the fee quoted is so low that it may be difficult to perform the engagement in accordance with applicable technical and professional standards for that price.
The significance of such threats will depend on factors such as the level of fee quoted and the services to which it applies. In view of these potential threats, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level.
Safeguards which may be adopted include:
Making the client aware of the terms of the engagement and, in particular, the basis on which fees are charged and which services are covered by the quoted fee.
Assigning appropriate time and qualified staff to the task.
47. Contingent fees
Contingent fees may give rise to threats to compliance to fundamental principles in certain circumstances. The significance of such threats will depend on factors including:
The nature of the engagement;
The range of possible fee amounts;
The basis for determining the fee; and
Whether the outcome or result of the transaction is to be reviewed by an independent third party.
Such safeguards may include:
An advance written agreement with the client as to the basis of remuneration;
Disclosure to intended users of the work and the basis of remuneration;
Quality control policies and procedures; and
Review by an objective third party of the work performed by the Professional Accountant. Contingent Fees (contd)
Contingent fees are widely used for certain types of non-assurance engagements. They may, however, give rise to threats to compliance with the fundamental principles in certain circumstances. They may give rise to a self-interest threat to objectivity.
The significance of such threats will depend on factors including:
The nature of the engagement.
The range of possible fee amounts.
The basis for determining the fee.
Whether the outcome or result of the transaction is to be reviewed by an independent third party.
The significance of such threats should be evaluated and, if they are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate or reduce them to an acceptable level.
Such safeguards may include:
An advance written agreement with the client as to the basis of remuneration.
Disclosure to intended users of the work performed by the Professional Accountant in public practice and the basis of remuneration.
Quality control policies and procedures.
Review by an objective third party of the work performed by the Professional Accountant in public practice.
Contingent Fees (contd)
Contingent fees are widely used for certain types of non-assurance engagements. They may, however, give rise to threats to compliance with the fundamental principles in certain circumstances. They may give rise to a self-interest threat to objectivity.
The significance of such threats will depend on factors including:
The nature of the engagement.
The range of possible fee amounts.
The basis for determining the fee.
Whether the outcome or result of the transaction is to be reviewed by an independent third party.
The significance of such threats should be evaluated and, if they are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate or reduce them to an acceptable level.
Such safeguards may include:
An advance written agreement with the client as to the basis of remuneration.
Disclosure to intended users of the work performed by the Professional Accountant in public practice and the basis of remuneration.
Quality control policies and procedures.
Review by an objective third party of the work performed by the Professional Accountant in public practice.
48. Contingent fees (contd /2)
A Professional Accountant should not pay or receive a referral fee or commission, unless the Professional Accountant has established safeguards to eliminate the threats or reduce them to an acceptable level. Such safeguards may include:
Disclosing to the client any arrangements to pay a referral fee to another Professional Accountant for the work referred.
Disclosing to the client any arrangements to receive a referral fee for referring the client to another Professional Accountant in public practice.
Obtaining advance agreement from the client for commission arrangements in connection with the sale by a third party of goods or services to the client.
49. Marketing professional services
When a Professional Accountant solicits new work through advertising or marketing, there may be potential threats to compliance with the fundamental principles.
The Professional Accountant should be honest and truthful and should not:
Make exaggerated claims for service offers, qualifications possessed or experience gained; or
Make disparaging references to unsubstantiated comparisons to the work of another.
If the Professional Accountant is in doubt whether a proposed form of advertising or marketing is appropriate, the Accountant should consult with the relevant professional body. Marketing Professional Services
When a Professional Accountant in public practice solicits new work through advertising or other forms of marketing, there may be potential threats to compliance with the fundamental principles. For example, a self-interest threat to compliance with the principle of professional behavior is created if services, achievements or products are marketed in a way that is inconsistent with that principle.
A Professional Accountant in public practice should not bring the profession into disrepute when marketing professional services. The Professional Accountant in public practice should be honest and truthful and should not:
Make exaggerated claims for services offers, qualifications possessed or experience gained; or
Make disparaging references to unsubstantiated comparisons to the work of
another.
If the Professional Accountant in public practice is in doubt whether a proposed form of advertising or marketing is appropriate, the Professional Accountant in public practice should consult with the relevant professional body.
Marketing Professional Services
When a Professional Accountant in public practice solicits new work through advertising or other forms of marketing, there may be potential threats to compliance with the fundamental principles. For example, a self-interest threat to compliance with the principle of professional behavior is created if services, achievements or products are marketed in a way that is inconsistent with that principle.
A Professional Accountant in public practice should not bring the profession into disrepute when marketing professional services. The Professional Accountant in public practice should be honest and truthful and should not:
Make exaggerated claims for services offers, qualifications possessed or experience gained; or
Make disparaging references to unsubstantiated comparisons to the work of
another.
If the Professional Accountant in public practice is in doubt whether a proposed form of advertising or marketing is appropriate, the Professional Accountant in public practice should consult with the relevant professional body.
50. Gifts and hospitality
Self-interest threats to objectivity may be created if a gift from a client is accepted; intimidation threats to objectivity may result from the possibility of such offers being made public.
The significance of such threats will depend on the nature, value and intent behind the offer.
If evaluated threats are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level.
When the threats cannot be eliminated or reduced to an acceptable level through the application of safeguards, the Accountant should not accept such an offer.
Gifts and Hospitality
A Professional Accountant in public practice, or an immediate or close family member, may be offered gifts and hospitality from a client. Such an offer ordinarily gives rise to threats to compliance with the fundamental principles.
For example, self-interest threats to objectivity may be created if a gift from a client is accepted; intimidation threats to objectivity may result from the possibility of such offers being made public.
The significance of such threats will depend on the nature, value and intent behind the offer. Where gifts or hospitality which a reasonable and informed third party, having knowledge of all relevant information, would consider clearly insignificant are made a Professional Accountant in public practice may conclude that the offer is made in the normal course of business without the specific intent to influence decision making or to obtain information.
In such cases, the Professional Accountant in public practice may generally conclude that there is no significant threat to compliance with the fundamental principles.
If evaluated threats are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level. When the threats cannot be eliminated or reduced to an acceptable level through the application of safeguards, a Professional Accountant in public practice should not accept such an offer.
Gifts and Hospitality
A Professional Accountant in public practice, or an immediate or close family member, may be offered gifts and hospitality from a client. Such an offer ordinarily gives rise to threats to compliance with the fundamental principles.
For example, self-interest threats to objectivity may be created if a gift from a client is accepted; intimidation threats to objectivity may result from the possibility of such offers being made public.
The significance of such threats will depend on the nature, value and intent behind the offer. Where gifts or hospitality which a reasonable and informed third party, having knowledge of all relevant information, would consider clearly insignificant are made a Professional Accountant in public practice may conclude that the offer is made in the normal course of business without the specific intent to influence decision making or to obtain information.
In such cases, the Professional Accountant in public practice may generally conclude that there is no significant threat to compliance with the fundamental principles.
If evaluated threats are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level. When the threats cannot be eliminated or reduced to an acceptable level through the application of safeguards, a Professional Accountant in public practice should not accept such an offer.
51. Custody of Client Assets
A Professional Accountant in public practice should NOT assume custody of client monies or other assets unless permitted to do so by law and, if so, in compliance with any additional legal duties imposed on a Professional Accountant holding such assets.
To safeguard against such threats, a Professional Accountant in public practice entrusted with money (or other assets) belonging to others should:
(a) Keep such assets separately from personal or firm assets;
(b) Use such assets only for the purpose for which they are intended;
(c) At all times, be ready to account for those assets, and any income, dividends or gains generated, to any persons entitled to such accounting; and
(d) Comply with all relevant laws and regulations relevant to the holding of and accounting for such assets.
Custody of Client Assets
A Professional Accountant in public practice should not assume custody of client monies or other assets unless permitted to do so by law and, if so, in compliance with any additional legal duties imposed on a Professional Accountant in public practice holding such assets.
The holding of client assets creates threats to compliance with the fundamental principles; for example, there is a self-interest threat to professional behavior and may be a self interest threat to objectivity arising from holding client assets. To safeguard against such threats, a Professional Accountant in public practice entrusted with money (or other assets) belonging to others should:
(a) Keep such assets separately from personal or firm assets;
(b) Use such assets only for the purpose for which they are intended;
(c) At all times, be ready to account for those assets, and any income, dividends or gains generated, to any persons entitled to such accounting; and
(d) Comply with all relevant laws and regulations relevant to the holding of and accounting for such assets.
In addition, Professional Accountants in public practice should be aware of threats to compliance with the fundamental principles through association with such assets, for example, if the assets were found to derive from illegal activities, such as money laundering. As part of client and engagement acceptance procedures for such services, Professional Accountants in public practice should make appropriate inquiries about the source of such assets and should consider their legal and regulatory obligations.
They may also consider seeking legal advice.
Custody of Client Assets
A Professional Accountant in public practice should not assume custody of client monies or other assets unless permitted to do so by law and, if so, in compliance with any additional legal duties imposed on a Professional Accountant in public practice holding such assets.
The holding of client assets creates threats to compliance with the fundamental principles; for example, there is a self-interest threat to professional behavior and may be a self interest threat to objectivity arising from holding client assets. To safeguard against such threats, a Professional Accountant in public practice entrusted with money (or other assets) belonging to others should:
(a) Keep such assets separately from personal or firm assets;
(b) Use such assets only for the purpose for which they are intended;
(c) At all times, be ready to account for those assets, and any income, dividends or gains generated, to any persons entitled to such accounting; and
(d) Comply with all relevant laws and regulations relevant to the holding of and accounting for such assets.
In addition, Professional Accountants in public practice should be aware of threats to compliance with the fundamental principles through association with such assets, for example, if the assets were found to derive from illegal activities, such as money laundering. As part of client and engagement acceptance procedures for such services, Professional Accountants in public practice should make appropriate inquiries about the source of such assets and should consider their legal and regulatory obligations.
They may also consider seeking legal advice.
52. Objectivity
Independence of mind and in appearance is necessary to enable the Professional Accountant to express an objective conclusion.
The Professional Accountant should evaluate the significance of identified threats and, if they are other than clearly insignificant, safeguards should be considered.
Such safeguards may include:
Withdrawing from the engagement team;
Supervisory procedures;
Terminating the financial or business relationship giving rise to the threat;
Discussing the issue with higher levels of management within the firm; and
Discussing the issue with those charged with governance of the client. Objectivity
Professional Accountants in public practice should consider when providing any professional service whether there are threats to compliance with the fundamental principle of objectivity resulting from having interests in, or relationships with, a client or directors, officers or employees. For example, a familiarity threat to objectivity may be created from a family or close personal or business relationship.
A Professional Accountant in public practice who provides an assurance service is required to be independent of the assurance client. Independence of mind and in appearance is necessary to enable the Professional Accountant in public practice to express a conclusion, and be seen to express a conclusion, without bias, conflict of interest or undue influence of others.
The existence of threats to objectivity when providing any professional service will depend upon the particular circumstances of the engagement and the nature of the work that the Professional Accountant in public practice is performing.
A Professional Accountant in public practice should evaluate the significance of identified threats and, if they are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level. Such safeguards may include
Withdrawing from the engagement team.
Supervisory procedures.
Terminating the financial or business relationship giving rise to the threat.
Discussing the issue with higher levels of management within the firm.
Discussing the issue with those charged with governance of the client.
Objectivity
Professional Accountants in public practice should consider when providing any professional service whether there are threats to compliance with the fundamental principle of objectivity resulting from having interests in, or relationships with, a client or directors, officers or employees. For example, a familiarity threat to objectivity may be created from a family or close personal or business relationship.
A Professional Accountant in public practice who provides an assurance service is required to be independent of the assurance client. Independence of mind and in appearance is necessary to enable the Professional Accountant in public practice to express a conclusion, and be seen to express a conclusion, without bias, conflict of interest or undue influence of others.
The existence of threats to objectivity when providing any professional service will depend upon the particular circumstances of the engagement and the nature of the work that the Professional Accountant in public practice is performing.
A Professional Accountant in public practice should evaluate the significance of identified threats and, if they are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level. Such safeguards may include
Withdrawing from the engagement team.
Supervisory procedures.
Terminating the financial or business relationship giving rise to the threat.
Discussing the issue with higher levels of management within the firm.
Discussing the issue with those charged with governance of the client.
53. Independence
It is in the public interest that members of assurance teams, firms and, when applicable, network firms be independent of assurance clients.
Independence requires:
Independence of Mind;
Independence in Appearance.
Independence
It is in the public interest that members of assurance teams, firms and, when applicable, network firms be independent of assurance clients.
Independence requires:
Independence of Mind
The state of mind that permits the expression of a conclusion without being affected by influences that compromise professional judgment, allowing an individual to act with integrity, and exercise objectivity and professional skepticism.
Independence in Appearance
The avoidance of facts and circumstances that are so significant that a reasonable and informed third party, having knowledge of all relevant information, including safeguards applied, would reasonably conclude a firms, or a member of the assurance teams, integrity, objectivity or professional skepticism had been compromised.
The use of the word independence on its own may create misunderstandings. Standing alone, the word may lead observers to suppose that a person exercising professional judgment ought to be free from all economic, financial and other relationships. This is impossible, as every member of society has relationships with others. Therefore, the significance of economic, financial and other relationships should also be evaluated in the light of what a reasonable and informed third party having knowledge of all relevant information would reasonably conclude to be unacceptable.
Independence
It is in the public interest that members of assurance teams, firms and, when applicable, network firms be independent of assurance clients.
Independence requires:
Independence of Mind
The state of mind that permits the expression of a conclusion without being affected by influences that compromise professional judgment, allowing an individual to act with integrity, and exercise objectivity and professional skepticism.
Independence in Appearance
The avoidance of facts and circumstances that are so significant that a reasonable and informed third party, having knowledge of all relevant information, including safeguards applied, would reasonably conclude a firms, or a member of the assurance teams, integrity, objectivity or professional skepticism had been compromised.
The use of the word independence on its own may create misunderstandings. Standing alone, the word may lead observers to suppose that a person exercising professional judgment ought to be free from all economic, financial and other relationships. This is impossible, as every member of society has relationships with others. Therefore, the significance of economic, financial and other relationships should also be evaluated in the light of what a reasonable and informed third party having knowledge of all relevant information would reasonably conclude to be unacceptable.
54. Independence (contd /2) A Conceptual Approach to Independence/1
Members of assurance teams, firms and network firms are required to apply the conceptual framework to the particular circumstances under consideration. In addition to identifying relationships between the firm, network firms, members of the assurance team and the assurance client, consideration should be given to whether relationships between individuals outside of the assurance team and the assurance client create threats to independence.
The objective is to assist firms and members of assurance teams in:
Identifying threats to independence;
Evaluating whether these threats are clearly insignificant; and
In cases when the threats are not clearly insignificant, identify and apply appropriate safeguards to eliminate or reduce the threats to an acceptable level.
Independence (contd)
A Conceptual Approach to Independence
Members of assurance teams, firms and network firms are required to apply the conceptual framework to the particular circumstances under consideration. In addition to identifying relationships between the firm, network firms, members of the assurance team and the assurance client, consideration should be given to whether relationships between individuals outside of the assurance team and the assurance client create threats to independence.
The objective is to assist firms and members of assurance teams in:
(a) Identifying threats to independence;
(b) Evaluating whether these threats are clearly insignificant; and
(c) In cases when the threats are not clearly insignificant, identifying and applying
appropriate safeguards to eliminate or reduce the threats to an acceptable level.Independence (contd)
A Conceptual Approach to Independence
Members of assurance teams, firms and network firms are required to apply the conceptual framework to the particular circumstances under consideration. In addition to identifying relationships between the firm, network firms, members of the assurance team and the assurance client, consideration should be given to whether relationships between individuals outside of the assurance team and the assurance client create threats to independence.
The objective is to assist firms and members of assurance teams in:
(a) Identifying threats to independence;
(b) Evaluating whether these threats are clearly insignificant; and
(c) In cases when the threats are not clearly insignificant, identifying and applying
appropriate safeguards to eliminate or reduce the threats to an acceptable level.
55. Independence (contd /3) A Conceptual Approach to Independence/2
Consideration should always be given to what a reasonable and informed third party having knowledge of all relevant information, including safeguards applied, would reasonably conclude to be unacceptable.
There are many steps the Professional Accountant in public practice needs to take to ensure that it complies with Independence requirements: -
Independence (contd)
A Conceptual Approach to Independence/2
Consideration should always be given to what a reasonable and informed third party having knowledge of all relevant information, including safeguards applied, would reasonably conclude to be unacceptable.
In situations when no safeguards are available to reduce the threat to an acceptable level, the only possible actions are to eliminate the activities or interest creating the threat, or to refuse to accept or continue the assurance engagement.
There are many steps the Firm needs to take to ensure that it complies with Independence requirementsIndependence (contd)
A Conceptual Approach to Independence/2
Consideration should always be given to what a reasonable and informed third party having knowledge of all relevant information, including safeguards applied, would reasonably conclude to be unacceptable.
In situations when no safeguards are available to reduce the threat to an acceptable level, the only possible actions are to eliminate the activities or interest creating the threat, or to refuse to accept or continue the assurance engagement.
There are many steps the Firm needs to take to ensure that it complies with Independence requirements
56. Independence (contd /4) (Other Key Considerations) Financial Interests
Loans and Guarantees
Close Business Relationships with Assurance Clients
Family and Personal Relationships
Employment with Assurance Clients
Serving as an Officer or Director on the Board of Assurance Clients
Long Association of Senior Personnel with Assurance Clients
Provision of Non-assurance Services to Assurance Clients
Valuation Services
Provision of Taxation Services
Provision of Internal Audit Services to Financial Statement Audit Clients
Provision of IT Systems Services to Financial Statement Audit Clients
Temporary Staff Assignments to Financial Statement Audit Clients
Provision of Litigation Support Services to Financial Statement Audit Clients
Provision of Legal Services to Financial Statement Audit Clients
Recruiting Senior Management
Corporate Finance and Similar Activities
Fees and Pricing/overdue fees
Gifts and Hospitality
Actual or Threatened Litigation
57. Sample framework to help sustain the Right Behaviors throughout the Firm Our focus on doing the right thing has always been an integral part of Ernst & Youngs culture. It lies at the heart of who we are as an organization. It is embedded in the way we make decisions, in the way we treat our clients, and in the way we treat each other.
But in today's often uncertain business climate, it is important that we remember what Ernst & Young stands for.
Rather than laying out a list of rules and regulations, we have adopted a simple framework that reinforces our commitment to ethics, integrity and quality.
Review the framework on the slide.Our focus on doing the right thing has always been an integral part of Ernst & Youngs culture. It lies at the heart of who we are as an organization. It is embedded in the way we make decisions, in the way we treat our clients, and in the way we treat each other.
But in today's often uncertain business climate, it is important that we remember what Ernst & Young stands for.
Rather than laying out a list of rules and regulations, we have adopted a simple framework that reinforces our commitment to ethics, integrity and quality.
Review the framework on the slide.
58. Professional AccountantS IN BUSINESS AND PUBLIC SERVICE
59. AGENDA Introduction
Potential Conflicts
Preparation and Reporting of Information
Acting with Sufficient Expertise
Financial Interests
Inducements
60. Introduction
A Professional Accountant in Business is someone that first meets the standards of a professional.
Second, is recognized as being an Accountant.
And third, is in Business, defined as:
Working in an organizational entity of any size and ownership structure, or alone, whether or not operating for profit, other than engaged in external audit;
An integral member of, or support to, the management team striving to create and sustain value for stakeholders.
61. Introduction (contd /2) -
The roles that Professional Accountants in Business perform.
-The performance of the Professional Accountant in Business is critical to the reputation and the credibility of the business firm, its management and the accountancy profession.
-Professional Accountants need to design and maintain mechanisms to assure that effective, ethical and responsible corporate governance and control is achieved. Introduction (contd)
The roles that Professional Accountants in Business perform includes:
implementing and maintaining operational and fiduciary controls,
providing analytical support for strategic planning and decision making,
ensuring that effective risk management processes are in place, and
assisting management in setting the tone for ethical practices.
The bottom line is that the performance of the Professional Accountant in Business is critical to the reputation and the credibility of the business firm, its management and the accountancy profession.
There is an important need for Professional Accountants to design and maintain mechanisms to assure that effective, ethical and responsible corporate governance and control is achieved.
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. Professional Accountants in business 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. They may also be responsible for providing effective financial management and competent advice on a variety of business-related matters.
A Professional Accountant in business may be a salaried employee, a partner, director (whether executive or non-executive), an owner manager, a volunteer or another working for one or more employing organization. The legal form of the relationship with the employing organization, if any, has no bearing on the ethical responsibilities incumbent on the Professional Accountant in business.
A Professional Accountant in business has a responsibility to further the legitimate aims of their employing organization. This Code does not seek to hinder a Professional Accountant in business from properly fulfilling that responsibility, but considers circumstances in which conflicts may be created with the absolute duty to comply with the fundamental principles.
A Professional Accountant in business often holds a senior position within an organization. The more senior the position, the greater will be the ability and opportunity to influence events, practices and attitudes. A Professional Accountant in business is expected, therefore, to encourage an ethics-based culture in an employing organization that emphasizes the importance that senior management places on ethical behavior.
Introduction (contd)
The roles that Professional Accountants in Business perform includes:
implementing and maintaining operational and fiduciary controls,
providing analytical support for strategic planning and decision making,
ensuring that effective risk management processes are in place, and
assisting management in setting the tone for ethical practices.
The bottom line is that the performance of the Professional Accountant in Business is critical to the reputation and the credibility of the business firm, its management and the accountancy profession.
There is an important need for Professional Accountants to design and maintain mechanisms to assure that effective, ethical and responsible corporate governance and control is achieved.
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. Professional Accountants in business 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. They may also be responsible for providing effective financial management and competent advice on a variety of business-related matters.
A Professional Accountant in business may be a salaried employee, a partner, director (whether executive or non-executive), an owner manager, a volunteer or another working for one or more employing organization. The legal form of the relationship with the employing organization, if any, has no bearing on the ethical responsibilities incumbent on the Professional Accountant in business.
A Professional Accountant in business has a responsibility to further the legitimate aims of their employing organization. This Code does not seek to hinder a Professional Accountant in business from properly fulfilling that responsibility, but considers circumstances in which conflicts may be created with the absolute duty to comply with the fundamental principles.
A Professional Accountant in business often holds a senior position within an organization. The more senior the position, the greater will be the ability and opportunity to influence events, practices and attitudes. A Professional Accountant in business is expected, therefore, to encourage an ethics-based culture in an employing organization that emphasizes the importance that senior management places on ethical behavior.
62. Potential Conflicts - Self Interest Threats
Examples of circumstances that may create self-interest threats for a Professional Accountant in business include, but are not limited to:
Financial interests, loans or guarantees.
Incentive compensation arrangements.
Inappropriate personal use of corporate assets.
Concern over employment security.
Commercial pressure from outside the employing organization. Potential Conflicts
Examples of circumstances that may create self-interest threats for a Professional Accountant in business include, but are not limited to:
Financial interests, loans or guarantees.
Incentive compensation arrangements.
Inappropriate personal use of corporate assets.
Concern over employment security.
Commercial pressure from outside the employing organization.
Examples of circumstances that may create familiarity threats include, but are not limited to:
A Professional Accountant in business in a position to influence financial or non-financial reporting or business decisions having an immediate or close family member who is in a position to benefit from that influence.
Long association with business contacts influencing business decisions.
Acceptance of a gift or preferential treatment, unless the value is clearly insignificant.
Potential Conflicts
Examples of circumstances that may create self-interest threats for a Professional Accountant in business include, but are not limited to:
Financial interests, loans or guarantees.
Incentive compensation arrangements.
Inappropriate personal use of corporate assets.
Concern over employment security.
Commercial pressure from outside the employing organization.
Examples of circumstances that may create familiarity threats include, but are not limited to:
A Professional Accountant in business in a position to influence financial or non-financial reporting or business decisions having an immediate or close family member who is in a position to benefit from that influence.
Long association with business contacts influencing business decisions.
Acceptance of a gift or preferential treatment, unless the value is clearly insignificant.
63. Potential Conflicts Familiarity Threats
Examples of circumstances that may create familiarity threats include, but are not limited to:
A Professional Accountant in a position to influence financial or non-financial reporting or business decisions having an immediate or close family member who is in a position to benefit from that influence.
Long association with business contacts influencing business decisions.
Acceptance of a gift or preferential treatment, unless the value is clearly insignificant.
Potential Conflicts
Examples of circumstances that may create self-interest threats for a Professional Accountant in business include, but are not limited to:
Financial interests, loans or guarantees.
Incentive compensation arrangements.
Inappropriate personal use of corporate assets.
Concern over employment security.
Commercial pressure from outside the employing organization.
Examples of circumstances that may create familiarity threats include, but are not limited to:
A Professional Accountant in business in a position to influence financial or non-financial reporting or business decisions having an immediate or close family member who is in a position to benefit from that influence.
Long association with business contacts influencing business decisions.
Acceptance of a gift or preferential treatment, unless the value is clearly insignificant.
Potential Conflicts
Examples of circumstances that may create self-interest threats for a Professional Accountant in business include, but are not limited to:
Financial interests, loans or guarantees.
Incentive compensation arrangements.
Inappropriate personal use of corporate assets.
Concern over employment security.
Commercial pressure from outside the employing organization.
Examples of circumstances that may create familiarity threats include, but are not limited to:
A Professional Accountant in business in a position to influence financial or non-financial reporting or business decisions having an immediate or close family member who is in a position to benefit from that influence.
Long association with business contacts influencing business decisions.
Acceptance of a gift or preferential treatment, unless the value is clearly insignificant.
64. Potential Conflicts Intimidation Threats
Examples of circumstances that may cause intimidation threats:
Threat of dismissal or replacement of the Professional Accountant or a close or immediate family member.
A dominant personality attempting to influence the decision making process.
65. Potential Conflicts - Safeguards Safeguards in the work environment include, but are not restricted to:
The employing organizations systems of corporate oversight or other oversight structures.
The employing organizations ethics and conduct programs.
Recruitment procedures in the employing organization emphasizing the importance of employing high caliber competent staff.
Strong internal controls
Appropriate disciplinary processes.
Leadership that stresses the importance of ethical behavior and the expectation that employees will act in an ethical manner.
Policies and procedures to implement and monitor the quality of employee performance.
Timely communication of the employing organizations policies and procedures, including any changes to them, to all employees and appropriate training and education on such policies and procedures.
Policies and procedures to empower and encourage employees to communicate to senior levels within the employing organization any ethical issues that concern them without fear of retribution.
Consultation with another appropriate Professional Accountant.
66. Potential Conflicts - Safeguards Safeguards in the work environment include, but are not restricted to:
The employing organizations systems of corporate oversight or other oversight structures.
The employing organizations ethics and conduct programs.
Recruitment procedures in the employing organization emphasizing the importance of employing high caliber competent staff.
Strong internal controls
Appropriate disciplinary processes.
Leadership that stresses the importance of ethical behavior and the expectation that employees will act in an ethical manner.
Policies and procedures to implement and monitor the quality of employee performance.
Timely communication of the employing organizations policies and procedures, including any changes to them, to all employees and appropriate training and education on such policies and procedures.
Policies and procedures to empower and encourage employees to communicate to senior levels within the employing organization any ethical issues that concern them without fear of retribution.
Consultation with another appropriate Professional Accountant.
67. Potential Conflicts Safeguards (Contd /2)
In circumstances where the Professional Accountant believes that unethical behavior or actions by others will continue to occur within the employing organization, the Professional Accountant should consider seeking 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, the Professional Accountant may conclude that it is appropriate to resign from the employing organization.
68. Preparation & Reporting of Financial Information
A Professional Accountant should present information fairly, honestly and in accordance with relevant professional standards.
The Professional Accountant should maintain information in a manner that:
Describes clearly the true nature of business transactions, assets or liabilities;
Classifies and records information in a timely and proper manner; and
Represents the facts accurately and completely in all material respects. Preparation and Reporting of Information
Professional Accountants in business are often involved in the preparation and reporting of information that may either be made public or used by others inside or outside the employing organization. Such information may include financial or management information, for example, forecasts and budgets, financial statements, management discussion and analysis, and the management letter of representation provided to the auditors as part of an audit of financial statements.
A Professional Accountant in business should prepare or present such information fairly, honestly and in accordance with relevant professional standards so that the information will be understood in its context.
A Professional Accountant in business who has responsibility for the preparation or approval of the general purpose financial statements of an employing organization should ensure that those financial statements are presented in accordance with the applicable financial reporting standards.
A Professional Accountant in business should maintain information for which the Professional Accountant in business is responsible in a manner that:
(a) Describes clearly the true nature of business transactions, assets or liabilities;
(b) Classifies and records information in a timely and proper manner; and
(c) Represents the facts accurately and completely in all material respects.
Preparation and Reporting of Information
Professional Accountants in business are often involved in the preparation and reporting of information that may either be made public or used by others inside or outside the employing organization. Such information may include financial or management information, for example, forecasts and budgets, financial statements, management discussion and analysis, and the management letter of representation provided to the auditors as part of an audit of financial statements.
A Professional Accountant in business should prepare or present such information fairly, honestly and in accordance with relevant professional standards so that the information will be understood in its context.
A Professional Accountant in business who has responsibility for the preparation or approval of the general purpose financial statements of an employing organization should ensure that those financial statements are presented in accordance with the applicable financial reporting standards.
A Professional Accountant in business should maintain information for which the Professional Accountant in business is responsible in a manner that:
(a) Describes clearly the true nature of business transactions, assets or liabilities;
(b) Classifies and records information in a timely and proper manner; and
(c) Represents the facts accurately and completely in all material respects.
69. Preparation & Reporting of Financial Information (Contd /2) Threats to compliance with the fundamental principles may be created.
The significance of such threats will depend on factors such as the source of the pressure and the degree to which the information is, or may be, misleading.
Where it is not possible to reduce the threat to an acceptable level, Professional Accountants should refuse to remain associated with information they consider is or may be misleading.
70. Acting with Sufficient Expertise
The fundamental principle of professional competence and due care requires that a Professional Accountant should only undertake significant tasks for which he has, or can obtain, sufficient specific training or experience.
Circumstances that threaten professional ability include the following:
Timing;
Incomplete, restricted or otherwise inadequate information;
Expertise/experience;
Resources.
Acting with Sufficient Expertise
The fundamental principle of professional competence and due care requires that a Professional Accountant in business should only undertake significant tasks for which the Professional Accountant in business has, or can obtain, sufficient specific training or experience.
Circumstances that threaten the ability of a Professional Accountant in business to perform duties with the appropriate degree of professional competence and due care include:
Insufficient time for properly performing or completing the relevant duties.
Incomplete, restricted or otherwise inadequate information for performing the duties properly.
Insufficient experience, training and/or education.
Inadequate resources for the proper performance of the duties.
Safeguards that may be considered include:
Obtaining additional advice or training.
Ensuring that there is adequate time available for performing the relevant duties.
Obtaining assistance from someone with the necessary expertise.
Consulting, where appropriate, with:
Superiors within the employing organization;
Independent experts; or
A relevant professional body.
Where the threat cannot be eliminated or reduced, the Accountant should refuse to perform the duties in question
Acting with Sufficient Expertise
The fundamental principle of professional competence and due care requires that a Professional Accountant in business should only undertake significant tasks for which the Professional Accountant in business has, or can obtain, sufficient specific training or experience.
Circumstances that threaten the ability of a Professional Accountant in business to perform duties with the appropriate degree of professional competence and due care include:
Insufficient time for properly performing or completing the relevant duties.
Incomplete, restricted or otherwise inadequate information for performing the duties properly.
Insufficient experience, training and/or education.
Inadequate resources for the proper performance of the duties.
Safeguards that may be considered include:
Obtaining additional advice or training.
Ensuring that there is adequate time available for performing the relevant duties.
Obtaining assistance from someone with the necessary expertise.
Consulting, where appropriate, with:
Superiors within the employing organization;
Independent experts; or
A relevant professional body.
Where the threat cannot be eliminated or reduced, the Accountant should refuse to perform the duties in question
71. Acting with Sufficient Expertise
Safeguards that may be considered include:
Training;
Adequate timing;
Involvement of personnel with relevant expertise;
Consulting, where appropriate, with:
Superiors within the employing organization;
Independent experts; or
A relevant professional body.
Where the threat cannot be eliminated or reduced, the Accountant should refuse to perform the duties in question. Acting with Sufficient Expertise
The fundamental principle of professional competence and due care requires that a Professional Accountant in business should only undertake significant tasks for which the Professional Accountant in business has, or can obtain, sufficient specific training or experience.
Circumstances that threaten the ability of a Professional Accountant in business to perform duties with the appropriate degree of professional competence and due care include:
Insufficient time for properly performing or completing the relevant duties.
Incomplete, restricted or otherwise inadequate information for performing the duties properly.
Insufficient experience, training and/or education.
Inadequate resources for the proper performance of the duties.
Safeguards that may be considered include:
Obtaining additional advice or training.
Ensuring that there is adequate time available for performing the relevant duties.
Obtaining assistance from someone with the necessary expertise.
Consulting, where appropriate, with:
Superiors within the employing organization;
Independent experts; or
A relevant professional body.
Where the threat cannot be eliminated or reduced, the Accountant should refuse to perform the duties in question
Acting with Sufficient Expertise
The fundamental principle of professional competence and due care requires that a Professional Accountant in business should only undertake significant tasks for which the Professional Accountant in business has, or can obtain, sufficient specific training or experience.
Circumstances that threaten the ability of a Professional Accountant in business to perform duties with the appropriate degree of professional competence and due care include:
Insufficient time for properly performing or completing the relevant duties.
Incomplete, restricted or otherwise inadequate information for performing the duties properly.
Insufficient experience, training and/or education.
Inadequate resources for the proper performance of the duties.
Safeguards that may be considered include:
Obtaining additional advice or training.
Ensuring that there is adequate time available for performing the relevant duties.
Obtaining assistance from someone with the necessary expertise.
Consulting, where appropriate, with:
Superiors within the employing organization;
Independent experts; or
A relevant professional body.
Where the threat cannot be eliminated or reduced, the Accountant should refuse to perform the duties in question
72. Financial Interests
Professional Accountants in business may have financial interests, or may know of financial interests of immediate or close family members, that could, in certain circumstances, give rise to threats to compliance with the fundamental principles.
Examples of circumstances/situations that may create self-interest threats include:
Direct or indirect financial interest;
Is eligible for a profit related bonus;
Holds, directly or indirectly, share options in the employing organization; or
May qualify for share options or performance related bonuses in the employing organization if certain targets are achieved.
FINANCIAL INTERESTS
Professional Accountants in business may have financial interests, or may know of financial interests of immediate or close family members, that could, in certain circumstances, give rise to threats to compliance with the fundamental principles.
Examples of circumstances that may create self-interest threats include, but are not limited to situations where the Professional Accountant in business or an immediate or close family member:
Holds a direct or indirect financial interest in the employing organization and the
value of that financial interest could be directly affected by decisions made by the
Professional Accountant in business;
Is eligible for a profit related bonus and the value of that bonus could be directly
affected by decisions made by the Professional Accountant in business;
Holds, directly or indirectly, share options in the employing organization, the
value of which could be directly affected by decisions made by the professional
accountant in business;
Holds, directly or indirectly, share options in the employing organization which
are, or will soon be, eligible for conversion; or
May qualify for share options in the employing organization or performance
related bonuses if certain targets are achieved.
FINANCIAL INTERESTS
Professional Accountants in business may have financial interests, or may know of financial interests of immediate or close family members, that could, in certain circumstances, give rise to threats to compliance with the fundamental principles.
Examples of circumstances that may create self-interest threats include, but are not limited to situations where the Professional Accountant in business or an immediate or close family member:
Holds a direct or indirect financial interest in the employing organization and the
value of that financial interest could be directly affected by decisions made by the
Professional Accountant in business;
Is eligible for a profit related bonus and the value of that bonus could be directly
affected by decisions made by the Professional Accountant in business;
Holds, directly or indirectly, share options in the employing organization, the
value of which could be directly affected by decisions made by the professional
accountant in business;
Holds, directly or indirectly, share options in the employing organization which
are, or will soon be, eligible for conversion; or
May qualify for share options in the employing organization or performance
related bonuses if certain targets are achieved.
73. Financial Interests - Safeguards
Safeguards may include:
Policies and procedures for a committee independent of management to determine the level of form of remuneration of senior management.
Disclosure of all relevant interests, and of any plans to trade in relevant shares to those charged with the governance of the employing organization, in accordance with any internal policies.
Consultation, where appropriate, with superiors within the employing organization/ those charged with governance of the employing organization or relevant professional bodies.
Internal and external audit procedures.
Up-to-date education on ethical issues and the legal restrictions and other regulations around potential insider trading.
A Professional Accountant in business should neither manipulate information nor use confidential information for personal gain. FINANCIAL INTERESTS (CONTD)
If threats are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate or reduce them to an acceptable level. Such safeguards may include:
Policies and procedures for a committee independent of management to determine
the level of form of remuneration of senior management.
Disclosure of all relevant interests, and of any plans to trade in relevant shares to
those charged with the governance of the employing organization, in accordance
with any internal policies.
Consultation, where appropriate, with superiors within the employing organization.
Consultation, where appropriate, with those charged with the governance of the
employing organization or relevant professional bodies.
Internal and external audit procedures.
Up-to-date education on ethical issues and the legal restrictions and other regulations around potential insider trading.
A Professional Accountant in business should neither manipulate information nor use
confidential information for personal gain.
FINANCIAL INTERESTS (CONTD)
If threats are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate or reduce them to an acceptable level. Such safeguards may include:
Policies and procedures for a committee independent of management to determine
the level of form of remuneration of senior management.
Disclosure of all relevant interests, and of any plans to trade in relevant shares to
those charged with the governance of the employing organization, in accordance
with any internal policies.
Consultation, where appropriate, with superiors within the employing organization.
Consultation, where appropriate, with those charged with the governance of the
employing organization or relevant professional bodies.
Internal and external audit procedures.
Up-to-date education on ethical issues and the legal restrictions and other regulations around potential insider trading.
A Professional Accountant in business should neither manipulate information nor use
confidential information for personal gain.
74. Inducements
Inducements may take various forms including:
gifts;
Hospitality;
preferential treatment; and / or
inappropriate appeals to friendship or loyalty.
Offers of inducements may create threats to compliance with the fundamental principles. Threats may include:
Self interest threats to objectivity or confidentiality; and/ or
Intimidation threats to objectivity or confidentiality.
INDUCEMENTS
A Professional Accountant in business or an immediate or close family member may be offered an inducement. Inducements may take various forms, including gifts, hospitality, preferential treatment and inappropriate appeals to friendship or loyalty.
Offers of inducements may create threats to compliance with the fundamental principles.
Self interest threats to objectivity or confidentiality are created where an inducement is made in an attempt to unduly influence actions or decisions, encourage illegal or dishonest behavior or obtain confidential information.
Intimidation threats to objectivity or confidentiality are created if such an inducement is accepted and it is followed by threats to make that offer public and damage the reputation of either the Professional Accountant in business or an immediate or close family member.
INDUCEMENTS
A Professional Accountant in business or an immediate or close family member may be offered an inducement. Inducements may take various forms, including gifts, hospitality, preferential treatment and inappropriate appeals to friendship or loyalty.
Offers of inducements may create threats to compliance with the fundamental principles.
Self interest threats to objectivity or confidentiality are created where an inducement is made in an attempt to unduly influence actions or decisions, encourage illegal or dishonest behavior or obtain confidential information.
Intimidation threats to objectivity or confidentiality are created if such an inducement is accepted and it is followed by threats to make that offer public and damage the reputation of either the Professional Accountant in business or an immediate or close family member.
75. Inducements - Safeguards
Assess the risk associated with all such offers and consider whether the following actions should be taken:
Where such offers have been made, immediately inform higher levels of management or those charged with governance of the employing organization;
Inform third parties of the offer for example, a professional body or the employer of the individual who made the offer; a Professional Accountant in business should, however, consider seeking legal advice before taking such a step;
Advise immediate or close family members of relevant threats and safeguards where they are potentially in positions that might result in offers of inducements, for example as a result of their employment situation;
Inform higher levels of management or those charged with governance of the employing organization where immediate or close family members are employed by competitors or potential suppliers of that organization. INDUCEMENTS (Contd)
A Professional Accountant in business should assess the risk associated with all such offers and consider whether the following actions should be taken:
(a) Where such offers have been made, immediately inform higher levels of
management or those charged with governance of the employing organization;
(b) Inform third parties of the offer for example, a professional body or the
employer of the individual who made the offer; a Professional Accountant in
business should, however, consider seeking legal advice before taking such a step;
(c) Advise immediate or close family members of relevant threats and safeguards where they are potentially in positions that might result in offers of inducements, for example as a result of their employment situation;
(d) Inform higher levels of management or those charged with governance of the employing organization where immediate or close family members are employed by competitors or potential suppliers of that organization.
INDUCEMENTS (Contd)
A Professional Accountant in business should assess the risk associated with all such offers and consider whether the following actions should be taken:
(a) Where such offers have been made, immediately inform higher levels of
management or those charged with governance of the employing organization;
(b) Inform third parties of the offer for example, a professional body or the
employer of the individual who made the offer; a Professional Accountant in
business should, however, consider seeking legal advice before taking such a step;
(c) Advise immediate or close family members of relevant threats and safeguards where they are potentially in positions that might result in offers of inducements, for example as a result of their employment situation;
(d) Inform higher levels of management or those charged with governance of the employing organization where immediate or close family members are employed by competitors or potential suppliers of that organization.
76. Making Offers
A Professional Accountant in business may be in a situation he is expected to, or is under other pressure to:
offer inducements to subordinate the judgment of another individual or organization;
influence a decision-making process; or
obtain confidential information.
Where the pressure to offer an unethical inducement comes from within the employing organization, the Professional Accountant should follow the principles and guidance regarding ethical conflict resolution.
Making Offers
A Professional Accountant in business may be in a situation where the Professional Accountant in business is expected to, or is under other pressure to:
offer inducements to subordinate the judgment of another individual or organization;
influence a decision-making process; or
obtain confidential information.
Such pressure may come from within the employing organization, for example, from a colleague or superior. It may also come from an external individual or organization suggesting actions or business decisions that would be advantageous to the employing organization possibly influencing the Professional Accountant in business improperly.
A Professional Accountant in business should not offer an inducement to improperly influence professional judgment of a third party.
Where the pressure to offer an unethical inducement comes from within the employing organization, the Professional Accountant should follow the principles and guidance regarding ethical conflict resolution set out in Part A of this Code.
Making Offers
A Professional Accountant in business may be in a situation where the Professional Accountant in business is expected to, or is under other pressure to:
offer inducements to subordinate the judgment of another individual or organization;
influence a decision-making process; or
obtain confidential information.
Such pressure may come from within the employing organization, for example, from a colleague or superior. It may also come from an external individual or organization suggesting actions or business decisions that would be advantageous to the employing organization possibly influencing the Professional Accountant in business improperly.
A Professional Accountant in business should not offer an inducement to improperly influence professional judgment of a third party.
Where the pressure to offer an unethical inducement comes from within the employing organization, the Professional Accountant should follow the principles and guidance regarding ethical conflict resolution set out in Part A of this Code.
77. CONCLUSION Ethics in Action.
Questions we should always ask.
Next steps.
78. Ethics in Action
The best of ethical values and intentions are relatively meaningless unless they generate fair and just behaviors in the workplace.
That's why practices that generate lists of ethical values, or codes of ethics, must also generate policies, procedures and training that translate those values to appropriate behaviors.
79. Ethics in Action (contd)
There are a number of VISIBLE aspects to our focus on ethics that you should already be aware of.
Review the list.
Highlight Ethical Principles as the last one indicating this is the most important providing the foundation for all the others.There are a number of VISIBLE aspects to our focus on ethics that you should already be aware of.
Review the list.
Highlight Ethical Principles as the last one indicating this is the most important providing the foundation for all the others.
80. Questions we should ALWAYS ask ourselves: Have I consulted appropriately with colleagues and superiors?
Are my actions legal and in compliance with the standards of our profession?
Am I compromising my integrity or the integrity of my profession, the Institute and clients?
Am I upholding the values of the profession?
Am I treating others the way I expect others to treat me?
Ernst & Young adopted ethics and compliance standards covering our responsibilities to the public trust, to clients, and to each other. These standards however only provide a foundation for ethical decision-making but they may not cover all of the situations, which we may face on a daily basis.
When we are faced with situations or difficult choices not explicitly covered in our policies, personal integrity and responsibility must be our guide. In complying with these standards, we should ask ourselves the following easy questions to help us make the right decision about a possible course of action: [read the questions]
Ernst & Young adopted ethics and compliance standards covering our responsibilities to the public trust, to clients, and to each other. These standards however only provide a foundation for ethical decision-making but they may not cover all of the situations, which we may face on a daily basis.
When we are faced with situations or difficult choices not explicitly covered in our policies, personal integrity and responsibility must be our guide. In complying with these standards, we should ask ourselves the following easy questions to help us make the right decision about a possible course of action: [read the questions]
81. Is my choice of action the most ethical among the possible alternatives? Do I feel good about my choice?
If I document my decision, would a reviewer agree with the action I have taken?
Would my actions damage the reputation of my self, firm, the Institute and the profession as a whole? Questions we should ALWAYS ask ourselves: Deloitte has adopted ethics and compliance standards covering our responsibilities to the public trust, to clients, and to each other. These standards however only provide a foundation for ethical decision-making but they may not cover all of the situations, which we may face on a daily basis.
When we are faced with situations or difficult choices not explicitly covered in our policies, personal integrity and responsibility must be our guide. In complying with these standards, we should ask ourselves the following easy questions to help us make the right decision about a possible course of action: [read the questions]
Deloitte has adopted ethics and compliance standards covering our responsibilities to the public trust, to clients, and to each other. These standards however only provide a foundation for ethical decision-making but they may not cover all of the situations, which we may face on a daily basis.
When we are faced with situations or difficult choices not explicitly covered in our policies, personal integrity and responsibility must be our guide. In complying with these standards, we should ask ourselves the following easy questions to help us make the right decision about a possible course of action: [read the questions]
82. Are my actions illegal or unethical?
Am I being fair and honest?
Would I be unwilling or embarrassed to tell my family, friends, or co-workers?
Would the company/firms reputation be harmed if the action were revealed in the newspapers?
Am I personally uncomfortable about the course of action?
Could someones life, health, safety or reputation be endangered by my action?
Could the intended action appear inappropriate to a third-party? Questions we should ALWAYS ask ourselves: EY has adopted ethics and compliance standards covering our responsibilities to the public trust, to clients, and to each other. These standards however only provide a foundation for ethical decision-making but they may not cover all of the situations, which we may face on a daily basis.
When we are faced with situations or difficult choices not explicitly covered in our policies, personal integrity and responsibility must be our guide. In complying with these standards, we should ask ourselves the following easy questions to help us make the right decision about a possible course of action: [read the questions]
EY has adopted ethics and compliance standards covering our responsibilities to the public trust, to clients, and to each other. These standards however only provide a foundation for ethical decision-making but they may not cover all of the situations, which we may face on a daily basis.
When we are faced with situations or difficult choices not explicitly covered in our policies, personal integrity and responsibility must be our guide. In complying with these standards, we should ask ourselves the following easy questions to help us make the right decision about a possible course of action: [read the questions]
83. The IFAC Ethics Code CONCLUSION
If you embrace ethical behaviour, will it automatically make you rich and successful? Of course not. Can it pave the way for you to become successful? Absolutely! Ethics + competence is a winning equation. In contrast, people who continually attempt to test the edge of ethics inevitably go over that edge. Shortcuts never pay off in the long run. It may be possible to fool people for a season, but in the long haul, their deeds will catch up with them because the truth does come out. In the short term, behaving ethically may look like a loss (just as one can temporarily appear to win by being unethical). However, in the long term, people always lose when they live without ethics. Have you ever met anyone who lived a life of shortcuts, deception, and cheating who finished well?
84. The IFAC Ethics Code King Solomon of ancient Israel, reputed to be the wisest man who ever lived, said it this way:
The ways of right-living people glow with light;
The longer they live, the brighter they shine.
But the road of wrongdoing gets darker and darker travelers cant see a thing; they fall flat on their faces.
85. The IFAC Ethics Code
US representative and educational rights advocate Jabez L. M. Curry observed, For a state to prosper must be built on foundations of a moral character, and this character is the principal element of its strength, and the only guarantee of its performance and prosperity. The same can be said of a business, or of a family or of any endeavour you wish to see thrive and endure. However, that foundation cannot be built by the organization as a whole. It must be built beginning with each individual. And it must be done in the face of continuous pressure to perform at the expense of doing the right thing.
86. The IFAC Ethics Code Lets go back to basics. How do you know whats right? How do you navigate even the most difficult of pressure filled situations? Where can you find a standard that will work in every situation a guide that will help you to sleep well at night, prosper in business, improve your marriage, and have confidence that you are doing all you can every time?
The same person who cheats on his taxes or steals office supplies wants honesty and integrity from the corporation whose stocks he buys, the politician he votes for, and the client he deals with in his own business.
87. The IFAC Ethics Code Dear Professional Accountant, do you recall the many questions we have to ask ourselves whenever we have any ethical challenges? The choices are never easy.
Dont just go the easy and the most convenient way to save your face in the short run but choose to do the right thing no matter the cost!! Ethics is not just a business issue nor is it a social issue or a political issue. It is always a personal issue.
88. The IFAC Ethics Code Remember that the battlefield is never easy but keep in mind also that it is NOT all doors that are opened by God? Good name will forever be better than riches!!!!
Remember any person without Standards or Values is empty!
89. The IFAC Ethics Code The Code is in three parts as follows:
Part A establishes the fundamental principles of professional ethics for Professional Accountants and provides a conceptual framework for applying those principles.
Parts B and C illustrate how the conceptual framework is to be applied in specific situations. Part B applies to professional accountants in public practice. Part C applies to Professional Accountants in business.
90. Next Steps Consult, consult, consult!!!!!!!!!!!!!!!!!!!
When it come to ethics, please never get tired consulting!!!!!!!!!!!
91. The IFAC Ethics Code
Welcome to the club, fellow Professional Accountant.
Enjoy your various careers and we wish you very well.
Be guided however as success is not an overnight package; it comes with lengthy moments of sweat and toil by doing the RIGHT THINGS over, over, over, over, over, over, over, over, over and over again!
92. The IFAC Ethics Code
What you do when you are drunk, you must pay for when you are sober.
[Scottish proverb]
Dont joke with ethics. Its highly inflammable!!!!
93.
END OF PRESENTATION
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THANK YOU VERY MUCH!!!!!!!!
