CODE OF PROFESSIONAL
ETHICS
The Accountancy Act of 2004
3 parts of Code of Ethics
Part A : Fundamental principles of professional ethics
and conceptual framework for Accountants
Part B & C How the conceptual framework applies in
certain situations
PART A: Fundamental Principles
Establishes the fundamental principles of professional
ethics for professional accountants
It provides conceptual framework that professional
accountants shall apply to:
a. Identify threats to compliance with the fundamental
principles;
b. Evaluate the significance of the threats identified; and
c. Apply safeguards, when necessary, to eliminate the
threats or reduce them to an acceptable level.
PART A: Fundamental Principles
A professional accountant shall comply with the
following fundamental principles:
Integrity
Objectivity
Professional Competence and Due Care
Confidentiality
Professional Behavior
Fundamental Principle:
Integrity
Implies fair dealing and truthfulness
to be straightforward and honest in all professional and
business relationships.
A professional accountant shall not knowingly be
associated with reports, returns, communications or other
information where the professional accountant believes
that the information:
a. Contains a materially false or misleading statement;
b. Contains statements or information furnished recklessly; or
c. Omits or obscures information required to be included
where such omission or obscurity would be misleading
Fundamental Principle:
Integrity
When a professional accountant becomes aware that
the accountant has been associated with such
information, the accountant shall take steps to be
disassociated from that information
Fundamental Principle:
Objectivity
all professional accountants shall not compromise
their professional or business judgment because of
bias, conflict of interest or the undue influence of
others
A professional accountant shall not perform a
professional service if a circumstance or relationship
biases or unduly influences the accountant’s
professional judgment with respect to that service.
Fundamental Principle:
Professional Competence and Due Care
To maintain professional knowledge and skill at the
level required to ensure that clients or employers
receive competent professional service; and
To act diligently in accordance with applicable
technical and professional standards when providing
professional services
Fundamental Principle:
Professional Competence and Due Care
Professional competence may be divided into two
separate phases:
a. Attainment of professional competence; and
b. Maintenance of professional competence.
– requires a continuing awareness and an understanding of
relevant technical, professional and business developments.
– Continuing professional development enables a
professional accountant to develop and maintain the
capabilities to perform competently within the professional
environment
Fundamental Principle:
Professional Competence and Due Care
Due care or Diligence encompasses the responsibility
to act in accordance with the requirements of an
assignment, carefully, thoroughly and on a timely
basis.
Fundamental Principle:
Confidentiality
The principle of confidentiality imposes an obligation
on all professional accountants to refrain from:
a. Disclosing outside the firm or employing organization
confidential information acquired as a result of
professional and business relationships without proper
and specific authority or unless there is a legal or
professional right or duty to disclose; and
b. Using confidential information acquired as a result of
professional and business relationships to their
personal advantage or the advantage of third parties
Fundamental Principle:
Confidentiality
A professional accountant shall maintain confidentiality of
information disclosed by:
a. a prospective client or employer
b. within the firm or employing organization
* Professional accountants are or may be required to
disclose confidential information or when such disclosure
may be appropriate:
a. Disclosure is permitted by law and is authorized by the
client or the employer;
b. Disclosure is required by law
Fundamental Principle:
Professional Behavior
The principle of professional behavior imposes an obligation on
all professional accountants to comply with relevant laws and
regulations and avoid any action that the professional
accountant knows or should know may discredit the profession.
Professional accountants shall be honest and truthful and not
a. Make exaggerated claims for the services they are able to offer, the
qualifications they possess, or experience they have gained; or
b. Make disparaging references or unsubstantiated comparisons to
the work of others.
THREATS AND SAFEGUARD
Compliance with the fundamental principles may
potentially be threatened by a broad range of
circumstances and relationships
Threats categories:
1. Self-interest
2. Self-review
3. Advocacy
4. Familiarity
5. Intimidation
SELF-INTEREST THREAT
the threat that a financial or other interest will
inappropriately influence the professional
accountant’s judgment or behavior
Self-Review Threat
the threat that a professional accountant will not
appropriately evaluate the results of a previous
judgment made or service performed by the
professional accountant, or by another individual within
the professional accountant’s firm or employing
organization, on which the accountant will rely when
forming a judgment as part of providing a current
service
Advocacy Threat
the threat that a professional accountant will
promote a client’s or employer’s position to the point
that the professional accountant’s objectivity is
compromised
Familiarity Threat
the threat that due to a long or close relationship
with a client or employer, a professional accountant
will be too sympathetic to their interests or too
accepting of their work; and
Intimidation Threat
the threat that a professional accountant will be
deterred from acting objectively because of actual or
perceived pressures, including attempts to exercise
undue influence over the professional accountant
Safeguards
Are appropriate to address threats (to eliminate them or reduce
them to an acceptable level) to compliance with the fundamental
principles.
Safeguards that may eliminate or reduce threats to an
acceptable level fall into two broad categories:
1. Safeguards to the created by the profession, legislation or
regulation; and
2. Safeguards in the work environment
Firm-wide
Engagement-specific
Within the client’s system
THREATS AND SAFEGUARDS TO
PROFESSIONAL ACCOUNTANTS
IN PUBLIC PRACTICE
Professional Appointment:
Circumstance Threats/Threats to Safeguard
Before integrity or Direct communication with the
acceptance of professional behavior existing accountant to establish the
new client facts and circumstances
Note: Where it is not possible to reduce the threats to an acceptable level, the
professional accountant in public practice shall decline to enter into the client
relationship.
Professional Appointment:
Circumstance Threats/Threats to Safeguard
Before selfinterest threat to 1. Obtaining knowledge and
acceptance of professional competence and understanding of the client, its
engagement due care owners, managers and those
responsible for its governance
and business activities;
2. Securing the client’s commitment
to improve corporate governance
practices or internal controls.
Note: Where it is not possible to reduce the threats to an acceptable level, the
professional accountant in public practice shall decline to enter into the client
relationship.
Professional Appointment:
Circumstance Threats/Threats Safeguard
to
Will accept offer professional 1. Before accepting the engagement, contact
or would offer to competence and with the existing accountant will be
replace another due care requested so that inquiries may be made as
auditor to reasons why the appointment should not
be accepted;
2. Asking the existing accountant to provide
known information on any facts or
circumstances.
3. Obtaining necessary information from other
sources
Note: When the threats cannot be eliminated or reduced to an acceptable level through the application of safeguards, a professional
accountant in public practice shall, unless there is satisfaction as to necessary facts by other means, decline the engagement
Professional Appointment:
Circumstance Threats/Threats Safeguard
to
Undertake work professional Notifying the existing accountant of the
that is competence and proposed work, which would give the existing
complementary due care accountant the opportunity to
or additional to provide any relevant information needed for the
the work of proper conduct of the work. The existing
existing accountant may provide info provided that:
accountant • Whether the client’s permission to do so has
been obtained
• Allowed by legal or ethical requirements
relating to such communications
A professional accountant in public practice will generally need to obtain the client’s permission, preferably in
writing, to initiate discussion with an existing accountant
Conflict of Interest
professional accountant in public practice shall take
reasonable steps to identify circumstances that could
pose a conflict of interest. Example:
o 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
o 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
Conflict of Interest (1/2)
Circumstance Threats/Threats Safeguard
to
Before accepting Objectivity and • Notifying the client of the firm’s business interest or
activities that may represent a conflict of interest and
or confidentiality obtaining their consent to act in such circumstances
continuing a • Notifying all known relevant parties that the professional
client accountant in public practice is acting for two or more
relationship or parties in respect of a matter where their respective
interests are in conflict and obtaining their consent to so
specific act; or
engagement, • Notifying the client that the professional accountant in
public practice does not act exclusively for any one client
in the provision of proposed services
Conflict of Interest (2/2)
Circumstance Threats/Threats Safeguard
to
Before accepting Objectivity , • The use of separate engagement teams
or confidentiality, • Procedures to prevent access to information
continuing a professional • Clear guidelines for members of the
client behavior engagement team on issues of security and
relationship or confidentiality
specific • The use of confidentiality agreements signed
engagement, by employees and partners of the firm
• Regular review of the application of
safeguards by a senior individual not involved
with relevant client engagements
Second Opinion
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
Second Opinion
Circumstance Threats/Threats Safeguard
to
Before accepting professional • Seeking client permission to contact the existing
the engagement competence and accountant, describing the limitations surrounding
due care any opinion in communications with the client and
providing the existing accountant with a copy of
the opinions
• If the company or entity seeking the opinion will
not permit communication with the existing
accountant, a professional accountant in public
practice shall determine whether, taking all the
circumstances into account, it is appropriate to
provide the opinion sought
Second Opinion
Circumstance Threats/Threats Safeguard
to
Before accepting professional • Seeking client permission to contact the existing
the engagement competence and accountant, describing the limitations surrounding
due care any opinion in communications with the client and
providing the existing accountant with a copy of
the opinions
• If the company or entity seeking the opinion will
not permit communication with the existing
accountant, a professional accountant in public
practice shall determine whether, taking all the
circumstances into account, it is appropriate to
provide the opinion sought
Fees and Other Types of
Remuneration
may quote whatever fee is deemed appropriate
may quote a fee lower than another
Fees and Other types of
remuneration
Circumstance Threats/Threats Safeguard
to
Fee quoted is so self-interest • Making the client aware of the terms of the
low that it may threat to engagement and, in particular, the basis on
be difficult to professional which fees are charged and which services
perform the competence are covered by the quoted fee; or
engagement in and due care • Assigning appropriate time and qualified staff
accordance with to the task
applicable
technical and
professional
standards for
that price
Fees and Other types of
remuneration
Circumstance Threats/Threats Safeguard
to
Contingent fees Self-interest • advance written agreement with the client as
are fees calculated on a threat to to the basis of remuneration
predetermined basis
relating to the objectivity • Disclosure to intended users of the work
outcome of a transaction performed by the professional accountant in
or the result of the
services performed by the public practice and the basis of remuneration
firm • Quality control policies and procedures
• Review by an independent third party of the
work performed by the professional
accountant in public practice
Gifts and Hospitality
Circumstance Threats/Threats Safeguard
to
Acceptance of self-interest or weigh all the specific facts and circumstances,
gift and familiarity threat
hospitality to objectivity Accept if, the gifts would consider trivial and
inconsequential and the offer is made in the normal
course of business without the specific intent to
influence decision making or to obtain information.
Custody of Client Assets
Circumstance Threats/Threats Safeguard
to
Entrusted with self-interest • Keep such assets separately from personal or
Client money (or threat to firm assets
other assets) professional • Use such assets only for the purpose for
behavior which they are intended
Or • At all times be ready to account for those
self-interest assets and any income, dividends, or gains
threat to generated, to any persons entitled to such
objectivity accounting; and
• Comply with all relevant laws and regulations
Objectivity
professional accountant in public practice who provides an
assurance service shall be independent of the assurance client
Safeguards to threat to Objectivity:
• 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
Conceptual Framework to
INDEPENDENCE
Independence
In case of audit engagements, members of audit
teams, firms and network firms shall be independent
of audit clients
Independence comprise of:
a) Independence of Mind
b) Independence in Appearance
How the conceptual framework
approach to independence is to be applied?
Circumstance Requirement
Engagement Independence from the audit client is required both
Period during the engagement period and the period
covered by the financial statements
Independence Audit : Member of engagement team, firm, network firm
requirement for
type of service Assurance (not restricted): members of engagement team
and firm
Assurance (resticted): assurance team only but the firm
should not material (whether direct/indirect) interest to the
client
How the conceptual framework
approach to independence is to be applied?
Circumstance Requirement
Financial Interest • direct if the beneficial owner has control over the
investment vehicle or the ability to influence its
investment decisions thus impair independence
• For indirect, it does not impair independence unless
material
Loans and If the client is financial institution: does not impair
guarantee independence provided:
• Immaterial to firm and client
• Made under normal procedures
If not a financial institution will impair independence unless
the loan is immaterial to both parties
How the conceptual framework
approach to independence is to be applied?
Circumstance Requirement
Close business Close business relationships can be considered direct financial
relationship interest
Loans and If the client is financial institution: does not impair independence
guarantee provided:
• Immaterial to firm and client
• Made under normal procedures
If not a financial institution will impair independence unless the
loan is immaterial to both parties
How the conceptual framework
approach to independence is to be applied?
Circumstance Requirement
Close business Close business relationships can be considered direct financial
relationship interest
Family and personal When a member of the audit team has a close family member
relationships who the audit team member knows has a direct financial interest
or a material indirect financial interest in the audit client, the
significance depends whether:
• Nature of relationship
• materiality of the financial interest to the close family
member
Safeguards in case of significant threat:
• Family member disposing all the financial interest or sufficient portion
to make it indirect
• Review the work of member of audit team
• Remove the individual from the audit team
How the conceptual framework
approach to independence is to be applied?
Circumstance Requirement
Close business Close business relationships can be considered direct financial
relationship interest
Family and personal When a member of the audit team has a close family member
relationships who the audit team member knows has a direct financial interest
or a material indirect financial interest in the audit client, the
significance depends whether:
• Nature of relationship
• materiality of the financial interest to the close family
member
Safeguards in case of significant threat:
• Family member disposing all the financial interest or sufficient portion
to make it indirect
• Review the work of member of audit team
• Remove the individual from the audit team
How the conceptual framework
approach to independence is to be applied?
Circumstance Requirement
Family and personal Independence is impaired when a member of an audit team has
relationships an immediate family member who is a director, an officer or an
employee with ability to influence the subject matter of the audit
Employment with Independence is impaired if:
an Audit Client a. The member of the audit team is a former director, officer or an
employee to exert significant influence in the preparation of
FS (cannot issue report covering the period when he is still
employed)
b. If a former member of the audit team or partner of the firm
has joined the audit client in such a position and a significant
connection remains between the firm and the individual
How the conceptual framework
approach to independence is to be applied?
Circumstance Requirement
Employment with Safeguards:
an Audit Client If a former member of the audit team or partner of the firm has
joined the audit client in such a position and a significant
connection remains between the firm and the individual
• Modifying the audit plan;
• Assigning individuals to the audit team who have
sufficient experience in relation to the individual who has
joined the client; or
• Having a professional accountant review the work of the
former member of the audit team.
How the conceptual framework
approach to independence is to be applied?
Circumstance Requirement
Long association • Familiarity and self-interest threats are created by using the
with audit client same senior personnel on an audit engagement over a long
period of time
• Safeguards:
• Rotating the senior personnel off the audit team
• Having a professional accountant who was not a member
of the audit team review the work of the senior
personnel
• Regular independent internal or external quality reviews
of the engagement
How the conceptual framework
approach to independence is to be applied?
Circumstance Requirement
Provision of non- 1. Preparing Accounting records and FS (not allowed not unless
assurance service to there’s an emergency)
an audit client • Arranging for such services to be performed by an
individual who is not a member of the audit team
• review the work performed by another person not
member of the team
Requisite for emergency situation:
1. Only the firm has the resources and necessary knowledge in
the timely preparation of its accounting records and financial
statements
2. a restriction on the firm’s ability to provide the services would
result in significant difficulties for the client
How the conceptual framework
approach to independence is to be applied?
Circumstance Requirement
Provision of non- 2. All Tax Service
assurance service to • does not generally create a threat to independence if
an audit client management takes responsibility for the returns including any
significant
3. Legal
• If advocate – impaired hence should not do this along
with audit
• If advisor – will not impair independence provided
safeguards are applied (page 95 Code of Ethics)
How the conceptual framework
approach to independence is to be applied?
Circumstance Requirement
Recruitment Service The firm may generally provide such services as:
• reviewing the professional qualifications of a number of
applicants and
• providing advice on their suitability for the post.
• the firm may interview candidates and advise on a candidate’s
competence for financial accounting, administrative or control
positions
• In all cases, the firm shall not assume management
responsibilities, including acting as a negotiator on the client’s
behalf, and the hiring decision shall be left to the client
How the conceptual framework
approach to independence is to be applied?
Circumstance Requirement
Fees overdue • Generally the firm is expected to require payment of such fees
before audit report is issued
Contingent fees • a firm shall not enter into contingent fee arrangement
• a fee is not regarded as being contingent if established by a
court or other public authority.
Gifts and Hospitality • audit team can accept gifts or hospitality, unless the value is
trivial and inconsequential
Actual or • If the litigation involves a member of the audit team, remove
Threatened that individual from the audit team
Litigation • Having a professional review the work performed
(when there is litigation
between the client and member
of engagement team)
