Chapter 4 : Ethics and acceptance
1. The need for professional ethics
Practitioners need to behave, and be seen to behave, in an ethical,
professional manner. This means taking active steps to act in an ethical
manner in every professional situation.
Professional accountants have a responsibility to act in the public interest. The
purpose of assurance engagements is to increase the confidence of the intended
users; therefore, the users need to trust the professional who is providing the
assurance.
In order to be trusted the assurance provider needs to be independent of their
client.
Independence can be defined as having ‘freedom from situations and
relationships where objectivity would be perceived to be impaired by a
reasonable and informed third party.’
Reasonable and informed third party:
The reasonable and informed third party does not need to be an accountant
but has enough relevant knowledge and experience to understand and evaluate
the appropriateness of the accountant’s conclusions in an impartial manner.
[Link] IESBA and ACCA codes and the conceptual framework
IFAC, through the IESBA, has issued a code of ethics, as has the ACCA. The ACCA
Code of Ethics and Conduct (2023) is covered in this chapter.
Both codes have the same roots and are, to all intents and purposes identical.
Both follow a conceptual framework which identifies:
Fundamental principles of ethical behaviour
Potential threats to compliance with these fundamental principles
Possible safeguards which can be implemented to eliminate the threats
identified, or reduce them to an acceptable level.
Ethical guidance can take either a principles-based approach or rules-based
approach.
A conceptual framework relies on a principles-based approach.
Both IESBA and ACCA adopt a principles-based approach.
If an accountant or auditor identifies a breach of the code of ethics, they
should act promptly to address the consequences of the breach and consider
whether the breach should be reported to ACCA or another professional body
or regulatory authority.
Principles-based approach:
Requires compliance with the spirit of the guidance.
Requires the accountant to use professional judgement.
Flexible, so can be applied to new, unusual or rapidly changing
situations.
Principles may be applied across national boundaries where laws may
not.
Can still incorporate specific rules for ethical situations likely to affect
many firms
Rules-based approach:
May be easier to follow because rules are clearly defined.
Needs frequent updating to ensure the guidance applies to new situations.
May encourage accountants to interpret requirements narrowly in order to
get around the spirit of the requirements.
Virtually impossible to be able to deal with every situation that may arise,
particularly across various national boundaries and in a dynamic industry.
Consequences:
Practitioners should apply the spirit of the code in everyday practice.
Professional bodies such as the ACCA have the right to discipline members who
fail to comply with the code of ethics through a process of disciplinary hearings
which can result in:
Fines
Suspension of membership
Withdrawal of membership.
3. The fundamental principles
Objectivity: A professional accountant must exercise professional or
business judgement without being compromised by bias, conflicts of
interest or undue influence of, or undue reliance on, individuals,
organisations, technology and other factors.
Professional behaviour: A professional accountant must comply with
relevant laws and regulations, behave in a manner consistent with the
profession’s responsibility to act in the public interest in all professional
activities and business relationships, and avoid any conduct that might
discredit the profession.
Integrity: A professional accountant must be straightforward and honest in
all professional and business relationships. This involves fair dealing,
truthfulness and having strength of character to act appropriately in all
situations.
Professional competence and due care: A professional accountant must
attain and maintain professional knowledge and skill at the level required
to ensure that a client or employer receives competent professional
services based on current developments in practice, legislation and
techniques. A professional accountant must act diligently and in
accordance with applicable technical and professional standards. This
requires a continuing awareness and an understanding of relevant
technical, professional, business and technology-related developments.
Continuing professional development enables a professional accountant to
develop and maintain the capabilities to perform competently and
discharge their responsibilities within a professional environment.
Confidentiality: Professional accountants 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. Such confidential
information should not be used for the personal advantage of members or
third parties