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Ethics Page 91

Ch # 13: Professional ethics and codes of conduct

Fundamental Principles

▪ Code of Ethics (2019) provide members with guidance on minimum acceptable standards of
professional conduct.
▪ All CAs are required to comply with the code of ethics.
▪ There might be circumstances where laws or regulations preclude an accountant from complying
with certain parts of Code. In such circumstances, those laws shall be followed
▪ A CA might encounter unusual circumstances in which he believes that result of applying a specific
requirement of Code would be disproportionate or might not be in the public interest. In that cases he
is encouraged to consult with a professional or regulatory body

1) INTEGRITY

▪ Straightforward & honest in professional & business relationships

▪ Integrity also implies fair dealing and truthfulness.
▪ Should not be associated with reports, returns, communications or other information where they
believe that the information:
- Contains a materially false or misleading statement;
- Contains statements or information furnished recklessly; or
- Omits or obscures required information to mislead
▪ When a CA becomes aware of having been associated with such information, he shall take steps to be
disassociated from that.
▪ If CA provides a modified report in respect of such information, he is not in breach of code

2) OBJECTIVITY

▪ Not to compromise their professional or business judgment because of bias, conflict of interest or the
undue influence of others.
▪ A CA shall not undertake a professional activity if a circumstance or relationship unduly influences the
accountant’s professional judgment regarding that activity.

3) PROFESSIONAL COMPETENCE & DUE CARE

▪ Maintain & apply professional knowledge and skill to ensure that clients or employers receive
competent professional service (using sound judgements)
▪ Act diligently in accordance with applicable technical and professional standards (carefully,
thoroughly and on a timely basis) when providing professional services.
▪ Professional competence may be divided into two separate phases:
- Attainment of professional competence; and
- Maintenance of professional competence.
▪ Maintaining professional competence requires continuing awareness and understanding of relevant
technical, professional and business developments. Continuing professional development (CPD)
enables a CA to develop and maintain such competence
▪ CA shall also take reasonable steps to ensure that those working under his authority have appropriate
training and supervision.
▪ Where appropriate, a CA shall make clients, employers or other users of the professional services or
activities, aware of the limitations inherent in the services or activities.
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4) CONFIDENTIALITY

CA should respect the confidentiality of information acquired as a result of professional and business
relationships.
▪ Be alert to the possibility of inadvertent disclosure, including in a social environment, and particularly
to a close business associate or an immediate or a close family member;
▪ Maintain confidentiality of information within the firm or employing organization;
▪ Maintain confidentiality of information disclosed by a prospective client/employer;
▪ Not disclose confidential information acquired as a result of professional and business relationships
outside firm or employing organization without proper & specific authority;
▪ Not use such confidential information for personal or any 3rd party advantage;
▪ Not use or disclose any such confidential information, after that relationship has ended;
▪ Take reasonable steps to ensure that personnel under CA’s control, and individuals from whom advice
and assistance are obtained, respect the accountant’s duty of confidentiality.

Circumstances where CAs are or may be required to disclose confidential information:

▪ Disclosure is permitted by law and is authorized by the client or the employer;

▪ Disclosure is required by law, for example:
- Production of documents or other provision of evidence in the course of legal proceedings
- Disclosure to appropriate public authorities of violation of law that come to light
▪ Professional duty or right to disclose, when not prohibited by law:
- To comply with QCR program of ICAP;
- To respond to an inquiry or investigation by ICAP or other regulatory body;
- To protect professional interests of a CA in legal proceedings
- To comply with technical standards and ethics requirements.

In deciding whether to disclose confidential information, CAs should consider following:

▪ Whether interests of any parties, including 3rd parties, could be harmed if the client or employing
organization consents to the disclosure of information by the CA.
▪ Whether all relevant information is known and confirmed, to the extent practicable and does not
involve Incomplete information and unconfirmed facts or conclusions
▪ The proposed type of communication, and to whom it is addressed
▪ Whether the parties to whom the communication is addressed are appropriate recipients
When changing employment or acquiring a new client, accountant is entitled to use prior experience
but shall not use any confidential information received as a result of a professional or business relationship

5) PROFESSIONAL BEHAVIOR

▪ Should comply with relevant laws and regulations and avoid any action that may bring discredit to the
profession (as per the eyes of a reasonable and informed 3rd party).
▪ A CA shall not knowingly engage in any business, occupation or activity that impairs or might impair
the integrity, objectivity or good reputation of the profession, and as a result would be incompatible
with the fundamental principles
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Conceptual Framework Approach

The conceptual framework specifies an approach for a CA to:

▪ Identify threats to compliance with the fundamental principles;
▪ Evaluate the threats identified; and
▪ Address the threats by eliminating or reducing them to an acceptable level.

When applying the conceptual framework, the CA shall:

▪ Exercise professional judgment;
▪ Remain alert for new information and to changes in facts and circumstances; and
▪ Use the reasonable and informed third party test.

Identifying Threats

▪ Threats might be created by a broad range of facts and circumstances

▪ Existence of certain conditions, policies and procedures established by the profession, legislation,
regulation, firm, or employing organization might also help identify threats e.g.
- Corporate governance requirements.
- Educational, training and experience requirements for the profession.
- Effective complaint systems which enable CA and general public to draw attention to unethical
behavior.
- An explicitly stated duty to report breaches of ethics requirements.
- Professional or regulatory monitoring and disciplinary procedures.
▪ It is not possible to define every situation that creates threats.
Threats fall into one or more of the following categories:
Threat Description
Self Interest A financial or other interest will inappropriately influence a CA’s judgment or
behavior
Self-review May not appropriately evaluate results of a previous judgment made; or an activity
performed by accountant, or by another within his firm or employing organization, on
which he will rely when forming judgment
Advocacy CA will promote a client’s or employer’s position to the point that the accountant’s
objectivity is compromised
Familiarity Due to long or close relationship with client, or employer, CA will be too sympathetic
to their interests or too accepting of their work
Intimidation CA will be deterred from acting objectively because of actual or perceived pressures,
including attempts to exercise undue influence
Note: A circumstance might create more than one threat, and a threat might affect compliance with more than one
fundamental principle.

Examples of different threats (to understand those more easily)

Self interest threat

Tutor’s ▪ CA having a direct financial interest (like shares or investment) in the client.
Note ▪ Firm having undue dependence on total fees from a client.
▪ CA having a significant close business relationship with client.
▪ A firm being concerned about the possibility of losing a significant client.
▪ A member of audit team entering into employment negotiations with audit client.
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Self review threat

▪ A member of audit team having recently been employed by the client in a position to exert
significant influence over the F/S.
▪ Firm having prepared Trial balance used to prepare F/S, which they are auditing.
▪ A firm issuing an assurance report on effectiveness of the operation of financial systems
after designing or implementing the systems.

Advocacy threat
▪ The firm promoting shares in an audit client.
▪ Acting as advocate on behalf of audit client in litigation or disputes with 3rd parties.

Familiarity threat
▪ CA having a close family member who is a director, officer or employee of client
▪ A director, officer or employee of client in a position to exert significant influence over
subject matter having recently served as the engagement partner.
▪ An audit team member having a long association with the audit client

Intimidation threat
▪ A firm being threatened with dismissal from a client engagement.
▪ A firm being threatened with litigation by the client.
▪ A CA being informed that a planned promotion will not occur unless he agrees with an
inappropriate accounting treatment.
▪ CA having accepted a precious gift from a client and being threatened that acceptance of this
gift will be made public.

Evaluating Threats

▪ After identifying a threat, he shall evaluate whether such a threat is at an acceptable level.
▪ Both qualitative as well as quantitative factors should be considered
▪ If CA becomes aware of new information or changes in facts and circumstances, he shall re-evaluate to
determine:
- The level of a threat;
- Whether previous safeguards applied continue to be appropriate to address threats; or
- Identification of any new threat

Addressing Threats

The accountant shall address the threats by

▪ Eliminating the circumstances, including interests or relationships, that creating threats;
▪ Applying available and applicable safeguards to reduce threats to an acceptable level; or
- Safeguards are actions, individually or in combination, that CA takes to reduce threats
- Acceptable level is a level at which CA would conclude that he complies with the fundamental
principles by using reasonable and informed 3rd party test
- Reasonable and informed 3rd party test is a consideration by CA about whether the same
conclusion would likely be reached by another party
▪ Declining or ending the specific professional activity (if threat cant be reduced)

In forming the overall conclusion about safeguards applied or planned, the accountant shall:
▪ Review any significant judgments made or conclusions reached; and
▪ Use the reasonable and informed third party test.
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Professional Skepticism
▪ CAs in practice are required to exercise professional skepticism when planning and performing
audits, reviews and other assurance engagements.
▪ Professional skepticism and fundamental principles are inter-related concepts.

Ethical conflict in complying all the fundamental principles

CA might face a situation in which complying with 1 fundamental principle conflicts with 1 or more other
principles. In that case, he may consider consulting, on anonymous basis, with:
▪ Others within the firm or the employing organization
▪ Those charged with governance
▪ A professional body
▪ A regulatory body
▪ Legal counsel
However, such consultation does not relieve him from the responsibility to exercise professional judgement
to resolve conflict or, if necessary, disassociate from the matter creating the conflict.

How to deal with case study question in exam (Code of Ethics)

Tutor’s
Note
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