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Chapter 3
Professional Codes of Ethics
and Conduct

© ACCA 1

CHAPTER 4:
Professional
Codes of
Ethics and Conduct

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Complying with The Code

IFAC
ethics
international of accounting.
standard
IESBA
Code

Registered student
ACCA Observe
standards Affiliate
Refrain from
misconduct
Code Member
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Fundamental Principles

Integrity

Professional
Objectivity
Behavior

Professional
Confidentiality Competence
and Due Care
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Integrity

In all professional, business, personal and financial relationships, the

professional accountant should be straightforward and honest. This
implies fair dealing, truthfulness and strength of character to act
appropriately …

Professional accountants should not knowingly be associated with

reports, returns, communications or other information which

 contains materially false or misleading statements;

 contains statements or information provided recklessly; or
 omits or obscures required information where such omission or
obscurity would be misleading.
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Activity: Integrity

In what situations might the

integrity of a professional
accountant be threatened?

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Answer to activity: Integrity toi

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accountant ?
Thigti god.

auditor (professional
© ACCA 7

Objectivity

The professional accountant’s exercise of professional or

business judgments must not be compromised by:
this hiep
 bias;
 conflict of interest; or
 undue influence of, or undue reliance on, individuals,
organisations, technology and other factors.
know ledge
Obtain
# know
-Maintain
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Professional Competence and Due Care

A professional accountant must:

 Attain and maintain the level of professional knowledge

and skill required to ensure their competence based on
current standards and relevant legislation.

 Act diligently and in accordance with applicable technical

and professional standards.

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Confidentiality Csubdo mat)

 Respect the confidentiality of information acquired as a
result of professional and business relationships.

Confidential information should not be:

 disclosed to a third parties without proper and specific

duty to disclose Deights

authority or unless there is a legal, professional right or
.

 used for any personal advantage or the advantage of a

third party.
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Professional Behaviour

 Comply with relevant laws and regulations

 Behave in a manner consistent with the profession’s

responsibility to act in the public interest

 Avoid any conduct that might discredit the profession

& © ACCA 11

Conceptual Framework

Threats
Identify

Evaluate
Acceptable level?

Address!
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Threats li ch ca nhair
Self-
Interest

(lam doa
Intimidation
Self- Mi Agial
Review

Familiarity Advocacy van long /ing ho

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f
k de
Self-interest Threat Assurance service. 710 %

Non-assurance

fo
Occurs as a result of the financial or other interests of the professional
accountant.

Examples: - que' ne
par on total $ the to man
-self-interest.
I
 Undue dependence & fees from a client
 Loans or guarantees made to or from a client

i
 Close personal or business tem relationships with a client
fan deco'te
e
fan
 Audit team member negotiating
-
employment with a client Ham ve t
 Financial interest in a client
 Gifts and hospitality
 Concern over losing a client or employment security.

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Client
④ Firm
>
- CFO

Attor
.

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Example 1 Self-interest Threats

2
-

es un i

-
more service
add 1

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service
Non- assuance

.
The koa
Non-audit service

Self-review Threat dung KQue

Managia
E
Arises when a professional accountant does not appropriately via
tro do
evaluate the results of a previous judgment; phan que
 made by either themselves or another individual within their
firm/employing organisation which they will rely on;
 when forming a judgment in providing a current service.

Examples:
 Reporting on the operation of systems after involvement in their
design or implementation;
 A member of an audit team was previously employed by the client in
a position that directly influenced the financial statements; and
 Business decisions/data being reviewed and justified by the person
responsible for making those decisions/preparing those data.

Cithhien Kei ti client

-
audit
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.

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Example 2 Self-review Threats

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Bien ho Hai diei
Advocacy Threat ba
quang
↑
Is created when the professional accountant promotes a client's or
employer's position or opinion to the point that subsequent objectivity
tinen knach quar
may be compromised. the hig
san co
way bi and
Examples:
 Promoting shares in an audit client;
 Acting as an advocate on behalf of an audit client in litigation or disputes
with third parties;
 Commenting publicly on future events in particular circumstances, having
made assertions without detailing the assumptions; and
 Where information is incomplete or advocating an argument which is
unlawful.
boo bink de
who
Bank- Agra
~
y
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Example 3 Advocacy Threats

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Familiarity Threat (than this d

- familial
10-15 years
.

Arises where a professional accountant, because of a long or close

relationship becomes:
 too sympathetic to the interests of a client or employer; or
 too willing to accept their work and explanations.

Examples:
 Over-familiarity (e.g. close or immediate family member) with
management;
 Long association with business contacts influencing business decisions;
 Acceptance of gifts etc, unless the value is clearly insignificant; and
 A former audit partner becoming a director, officer or employee of a client
in a position to exert direct influence over the financial statements.
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Example 4 Familiarity Threats

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Intimidation Threat (e doa)

Arises where the professional accountant may be deterred from acting

objectively by actual or perceived pressures – including attempts to
exercise undue influence over the accountant.

Examples:
 The threat of dismissal (as an employee) or replacement (as an auditor),
for example, over disagreement about an accounting principle;
 A dominant personality attempting to influence the presentation of
financial information or controlling the audit appointment;
 The threaten of litigation; and
 Pressure to reduce necessary work to reduce costs or fees.
tin theo G + that
VD : KIT lg ea
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Example 5 Intimidation Threats

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-

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Tat
Gi and 1

ochobat
i n aa BC KT
th
lig tray trung this
.

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GQu v mos de doc

Addressing Threats

Eliminate • Circumstances

Apply • If available
safeguards
①
O Decline • Or end
the activity
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Safeguards

Definition
Actions, individually or in combination, taken by the professional
accountant that effectively eliminate threats to compliance with the
fundamental principles or reduce them to an acceptable level.
threat
him this
An action is only a safeguard if it is effective.

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Independence
Of In
mind appearance

 Permits the expression of a Avoiding instances in which the facts and

conclusion without being affected by circumstances are so significant that:
influences that compromise
 a reasonable and informed third party,
professional judgment; and
 knowing all relevant information
 Allows an individual to act with (including safeguards applied)
integrity and exercise objectivity and
professional scepticism.  would reasonably conclude that
integrity, objectivity or professional
scepticism had been compromised.

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1 At an mua hag LV via client , 30 % discount.

normal business cost

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Threats to Independence: Fees

General Audit fees Total fees

Level of threat depends on:

Threats are increased if:
 commercial rationale for
 a large proportion of
the fee
Creates a self-interest fees is generated from
threat  whether there is undue other services to an
pressure to reduce the audit client
Might create an fee
intimidation threat
-
Contingent fees

O
fees are overdue

are PROHIBITED
no peri
Itoau .

pertie tang.
Lloans.

Auditfees PIL of Financial statement

.
sale" interest .

Based
-

. on
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↓

No Safeguard

Threats to Independence: Fee Dependency

PIEs Not PIEs

“Two consecutive years and 15% rule”

“Five consecutive years an 30% rule”
Possible safeguard: “pre-issuance review”
Possible safeguards: “pre-issuance review”
After five years: CEASE to be the auditor
or “post-issuance review”

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Threats to Independence: Inducements

Potential self-interest, familiarity and intimidation threats:

 High value gifts or hospitality to audit team, partner or firm

 Preferential treatment or services
 Commercial opportunities.

Safeguards:
 Compliance with applicable laws and regulations
 Informing TCWG of client regarding offer
 Decline offer
 Decline or terminate business relationship

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Threats to Independence: Litigation

Potential self-interest and intimidation threats:

 Threat of litigation for negligence or unprofessional conduct.

 Client is adversarial
 Breakdown of trust

Safeguards:
 Independent review of work
 If directed against individual, remove individual from audit team.

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Threats to Independence: Financial interests

Potential self-interest and intimidation threats:

 Financial interests in a client may be direct or indirect

 Threat depends on who holds it (a partner, other audit team member
or close family member)

How to address?
 Disposal of interest (i.e. eliminate threat)
Safeguards
 Removal of affected individual from audit team
 Independent review of work of affected audit team member

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Threats to Independence: Personal Relationship

Potential self-interest, familiarity, intimidation threats:

 Close personal relationship of audit team member with client staff

that is in a position to significantly influence the audit.

Safeguards:
 Affected audit team member does not audit related individual’s area
of responsibility
 Removal of affected individual from audit team
 Independent review of work of affected audit team member

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Threats to Independence: Loans and Guarantees

Loans and guarantees to an audit client by a firm, audit team member

or immediate family are prohibited unless immaterial to both:
 the firm (or individual) making the loan or guarantee; and
 the client.
Loans and guarantees from an audit client that is not a bank (or similar
institution) are similarly prohibited.
Safeguards:
 Removal of affected individual from audit team
 Independent review of work of affected audit team member
If safeguards cannot reduce threat to an acceptable level:
 Decline engagement
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Threats to Independence: Non-assurance Services

Potential self-interest, self-review, familiarity and intimidation threats:

 Services in areas that will be audited by firm (e.g. bookkeeping, taxation,

IT, internal audit or valuation services).
 Significant proportion of fees from non-assurance services (NAS).

Safeguards:
 Compliance with applicable laws and regulations
 Independent review of audit work
 Excluding personnel that perform NAS from the audit team.

If safeguards cannot reduce threat to an acceptable level:

 Decline non-audit service.
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Threats to Independence: Assuming Management

Responsibility

Potential self-interest, self-review, familiarity threats:

 assuming management responsibilities in client operations.

*providing advice to assist management is not assuming management responsibilities

Safeguard:
 Ensure management acknowledges responsibility (e.g. for decision).

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Threats to Independence: Long Association of

Personnel

Potential self-interest and familiarity threats:

 Individual’s concern about losing a long-standing client, or

 An interest in maintaining close personal relationship with a member
of senior management

For a PIE client:

 “Time-on” period restricted to 7 years
 “Cooling-off” period, minimum 5 years (audit partner)

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Threats to Independence: Employment with Client

Potential self-interest, familiarity or intimidation threats

Former partner/audit team member restrictions Audit team member joining a client

 Must be NO significant
connection between  Individual must notify the firm
firm and individual
Safeguards:
Safeguards to address familiarity or
 immediate removal from audit team
intimidation threats:
 review their significant judgments
 modifying the audit plan
For a key audit partner of PIE client,
 assign sufficiently experienced audit team
independence is compromised
 quality review

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Activity: Independence for Audit Engagements

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Breach of Independence Provisions

End, suspend Consider any Evaluate the Determine

Promptly course of action
or eliminate legal or significance of
communicate (e.g. whether to
the interest or regulatory the breach
the breach end the audit
relationship requirements and its impact engagement)

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Second Opinions

“Opinion-shopping” (by another professional’s client)

Potential self-interest threat:

 To professional competence and due care

Independence threat to the existing auditor/accountant

Safeguards:
 Communicate with existing auditor/accountant
 Describe limitations of opinion in light of available evidence.

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Discussion and Communication with TCWG

Discussion with TCWG Communication with TCWG

 Significance and nature of the breach  Summary of matters discussed and
TCWG's concurrence on proposed
 How the breach occurred and was
identified actions

 Proposed or taken actions and their  Description of firm's independence

policies and procedures
adequacy
 Firm's conclusion on maintaining  Steps taken or proposed to prevent
objectivity future breaches

 Measures to prevent further breaches

If TCWG do not concur that proposed action

is satisfactory, END the audit engagement © ACCA 41

Confidentiality => Keep information secret from the third parties

Usage Disclosure

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Confidentiality: Disclosure
Information acquired from provision of professional services should
not be disclosed to third parties without permission from client.

Obligatory exceptions:
 Statutory duty to disclose information (court order or statutory
requirement)
 Professional duty to disclose information (compliance with ethical
standards or inquiry by professional body) Trách nhiệm nghề nghiệp

Voluntary disclosure only in the “public interest” or to protect auditor’s

interest.

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Confidentiality: Use

Information acquired in the course of professional work must not be

used to personal advantage/advantage of a third party

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Conflicts of Interest

Professional
Client
accountant
v Client
v Client

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Conflicts of Interest: Client vs Professional

Accountant
Potential self-interest threat:

Engagement that may lead to significant conflict of interest between

client and firm should not be accepted.
Conflict between Client >< Firm
Safeguards: => Interest
 Decline engagement
 Disclosure to client on arrangement with potential conflict of interest.

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Conflicts of Interest: Client vs Client

Potential self-interest and intimidation threat:

Work should be managed to avoid interests of clients affecting each

other.

Safeguards:
 Screening of potential clients.
 Disclosure to client on potential conflict of interest with other clients.
 Separation of audit teams, and enforcement of confidentiality.
 Independent review of audit work.

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Activity: Independence for Audit Engagements

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Chapter 4: Summary
 ACCA's Code of Ethics and Conduct applies to all students and members
 Fundamental principles are: Integrity, Objectivity, Professional competence and
due care, Confidentiality, and Professional behaviour
 Conceptual framework approach identifies, evaluates and responds to threats
 Threats are: Self-interest, Self-review, Advocacy, Familiarity and Intimidation
 Threats must be eliminated, reduced to an acceptable level or activity declined
 Safeguards are actions taken by the professional accountant
 Independence is “of mind” and “in appearance”
 Listed entities are “public interest entities” (PIEs)
 Fee dependency threshold is 15% for PIE client and 30% for a not-PIE client
 Confidential information cannot be disclosed unless a duty to disclose
 Information acquired during professional work must not be used to advantage
 Conflicts of interest between accountants and clients must be avoided

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Thank you

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