The Changing Face of Ethics - Developing A Code of Ethics For Professional Accountants From 1977 To 2006

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ACH0010.1177/1032373217751219Accounting HistorySonnerfeldt and Loft
Article Accounting History
Accounting History
The changing face of ethics – 1–21

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DOI: 10.1177/1032373217751219
https://doi.org/10.1177/1032373217751219
Professional Accountants from

journals.sagepub.com/home/ach
1977 to 2006
Amanda Sonnerfeldt and Anne Loft

Lund University, Sweden
Abstract
This article aims to contextualise the development of the Code of Ethics for Professional Accountants by the
International Federation of Accountants (IFAC) between 1977 and 2006. Drawing on transnational regulation
literature, an extensive review of archival documents was conducted. The analysis unfolds the development
of the Code in an increasingly complex regulatory environment, revealing the dynamic forces and sequence
of events that influenced its nature and contents over three distinctive periods. This study reveals that the
shifts in IFAC’s priorities in pursuit of its global aspirations created mechanisms that allowed transnational
accounting firms and international regulators to influence the priorities of the Ethics Committee. The
Committee’s efforts to legitimise and secure endorsement of the Code were constrained by its initial work
programme to develop a model code through minimum harmonisation. Later, the Committee redirected its
focus towards meeting the needs of the international regulators by adding more rule-based guidance within
the principle-based Code and heavily prioritising independence.
Keywords
accounting history, code of ethics, International Federation of Accountants (IFAC), standard setting,
transnational regulation
Introduction
Being ethical is expected of accountants not only by the people who use the services they render
but also by society at large. Accountants, including both auditors and accountants in business, have
an integral role in contributing to financial stability. They play a vital role in ensuring public trust
in financial reporting and business practices.
Ethics in its ordinary usage refers to moral principles of human conduct (Flint, 1988: 91).
Professional ethics is a form of applied ethics (i.e. an application of the general notions of ethical
conduct to a particular field). The concept of ethics is broad, abstract and rather elusive, which
makes developing ethical codes a challenging endeavour. In The Philosophy of Auditing, Mautz
and Sharaf (1961) state that a professional man has an obligation to understand the ideals and
functions of his profession, to consider the possible outcome of any proposed action and to refrain
Corresponding author:
Amanda Sonnerfeldt, Department of Business Administration, School of Economics and Management, Lund University,
Box 7080, 220 07 Lund, Sweden.
Email: amanda.sonnerfeldt@fek.lu.se
2 Accounting History 00(0)
from activities that would detract from the healthy survival of the profession. These obligations
could be described as ‘an attitude or set of ideals’ or stated as ‘a series of specific rules of conduct’
(Mautz and Sharaf, 1961: 232). While being ethical rests on an individual, ethical codes for
accountants had been promulgated by professional associations in different jurisdictions, and they
were often developed when accountants embarked on the process of professionalisation (Wilensky,
1964).
Since the 1970s, economic globalisation and the liberalisation of capital markets have contrib-
uted to the need to harmonise accounting and auditing. Non-state transnational organisations,
namely, the International Accounting Standards Committee (IASC)1 and the International
Federation of Accountants (IFAC) emerged in 1973 and 1977, respectively, to set international
accounting standards and auditing guidelines (Camfferman and Zeff, 2007; Humphrey and Loft,
2008). This created a need for ethical guidelines for professional accountants at the international
level to support adherence to the technical pronouncements. The Ethics Committee, a standing
committee of IFAC until 2005, was formed in 1977 to develop the Code of Ethics for Professional
Accountants (the Code) applicable to IFAC members worldwide.2
In the accounting literature, many studies have focused on the development of ethical codes for
the accounting profession at the national level (Chandler, 2017; Neu, 1991; Neu and Saleem, 1996;
Preston et al., 1995). There have also been studies of the development of ethical rules for auditors
at a regional level (Samsonova-Taddei and Siddiqui, 2016). These studies have contributed
immensely to our awareness of the context-sensitive nature of ethical codes, which tend to be
developed in response to contemporary conditions.
With the International Accounting Standards Board (IASB) and IFAC becoming integral play-
ers in the global financial governance process, the understanding of transnational regulation of
accounting has become more important and relevant. The recognition of International Financial
Reporting Standards (IFRS) and International Standards on Auditing (ISAs) as key standards
important to financial stability has motivated several studies on their development and legitimacy
(Botzem, 2014; Humphrey and Loft, 2011; Richardson and Eberlein, 2011). However, accounting
research has neglected the development of ethical guidance for accountants at the international
level, even though transnational accounting firms, international organisations such as the World
Bank (WB) and the member bodies of IFAC from over 80 countries have adopted the Code (IESBA,
2014). The few studies on the Code have focused on its adoption and implementation (Clements
et al., 2009; Cohen et al., 1992; Espinosa-Pike and Barrainkua-Aroztegi, 2014; Farrell and Cobbin,
2000). As far as it can be determined, none of the studies have focused on the influences on its
development.
With the recent corporate scandals and the growth of non-audit services performed by account-
ing firms, the values and mindset of accountants have become subjected to increasing scrutiny by
regulators, academia and the general public (Carter and Spence, 2014; Gendron and Spira, 2009;
Wyatt and Gaa, 2004). In the aftermath of the 2007 global financial crisis (GFC), ethics has again
taken centre stage in policy discussions. To understand the contemporary challenges of regulating
the professional conduct of accountants at the international level, it is crucial to understand the
unique contexts within which the Code has developed over time.3
The purpose of this article is to contextualise the development of the Code of Ethics for
Professional Accountants by IFAC between 1977 and 2006. The analysis focuses on unfolding the
development of the Code ‘in action’ to reveal the dynamic forces and sequence of events that made
an impact on the nature and contents of the Code in three periods prior to the 2007 GFC.
The study draws on transnational regulation literature to advance our knowledge on the devel-
opment of the Code in the context of IFAC pursuing its aspirations as a global standard setter. This
approach will enhance our understanding of how the Code became what it is and the various forms
Sonnerfeldt and Loft 3
of legitimacy that the Ethics Committee drew upon over time. This awareness, in turn, will contrib-
ute to a more informed policy discussion and identify the issues to be further researched and
debated during the current audit reform.
This article is structured as follows: The next section presents a discussion on the role and
development of codes of ethics. This is followed by an introduction to transnational regulation that
provides a theoretical framing of the study. The method, analysis, discussion and conclusion are
then presented.
The role and development of ethical codes

According to Frankel (1989), the code of ethics of a profession ‘embodies the collective conscience
of a profession and is testimony to the group’s recognition of its moral dimension’ (p. 110). A code
of ethics has been regarded as the most concrete cultural form by which a profession enunciates its
professional norms and acknowledges its obligations to society (Abbott, 1983; Frankel, 1989).4
Research has highlighted that codes of ethics have a functional role. They serve an educational,
a regulatory and an aspirational role, communicating ideals for individual and collective consciences
(Frankel, 1989). More critical studies juxtapose the dual role of professional ethics, highlighting the
latent rationale behind codes in which public interest is visibly explicated, while private interests are
hidden yet powerful (Brinkmann and Ims, 2003; Parker, 1994). Ethical codes can be used as a
device in a profession’s quest for professional privileges (Larson, 1977; Willmott, 1986) and legiti-
macy (Backof and Martin, 1991; Citron, 2003; Neu, 1991; Parker, 1994; Preston et al., 1995).
The development of ethical codes for professions has been strongly tied to the historical, legal,
socio-economic and cultural conditions of each country as well as to changes in services the pro-
fession offers (Backof and Martin, 1991; Chandler, 2017; Preston et al., 1995) Professional asso-
ciations have also emulated the ethical codes of more established professional bodies or even of
other professions (Neu and Saleem, 1996).
Ethical codes have been shaped by governance reforms following periods of accounting or
auditing failure to codify new social and political arrangements. These reforms typically encom-
pass legislative changes and a greater involvement of regulators in monitoring the conduct of
professional accountants.5 Studies have shown that this is often accompanied by the accounting
profession’s efforts to issue or strengthen its ethical code in order to legitimise and ease the con-
cerns of regulators pertaining to the efficacy of self-regulation by the profession (Öhman and
Wallerstedt, 2012; Preston et al., 1995).
While the accountancy profession and regulators acknowledge the importance of auditors hav-
ing virtues that ensure that professional judgement is exercised according to a high moral standard,
regulators tend to have different notions as to how to regulate the conduct of accountants.
Samsonova-Taddei and Siddiqui (2016) found that the approach adopted by the European
Commission in the post-2007 GFC audit reform relates most strongly to the deontological theories
of ethics, a normative approach that emphasises duties or rules. This is a restrictive view of auditor
ethics, which stands in contrast to approaches that emphasise the consequence of actions or the
virtues that enable an accountant to make ethical judgements consistent with public trust. This
view could significantly influence the nature and contents of the profession’s ethical code.
Transnational regulation
The development of the Code was set in the context of a changing regulatory landscape.
Globalisation and deregulation in the 1970s and 1980s had challenged the capacity of the state to
regulate corporations. The locus of regulation had shifted from state to non-state actors and from
national to transnational actors organised in different forms and constitutions to address global
issues (Djelic and Sahlin-Andersson, 2006; Peters et al., 2009). The new regulatory arena can be
characterised by its complexity and interdependencies, fragmentation of knowledge, power and
control (Black, 2001). Regulatory innovation and new governance mechanisms emerged, which
brought about a change in the performance of regulatory functions, institutional structures and
organisational processes (Black et al., 2006).
In the field of accounting, the growth of accounting firms beyond their traditional domain expe-
dited the shift in the regulation of the accounting profession from one dominated by the state and
national professional associations to one represented by interlocking relationships between IFAC,
transnational regulatory agencies and multinational professional services firms (Cooper and
Robson, 2006; Gillis et al., 2014; Humphrey et al., 2009). The role of the state and of national
professional associations became redefined in the complex regulatory landscape where global
standards have become increasingly prominent as a regulatory tool (Humphrey and Loft, 2011;
Kerwer, 2005). Within global and transnational systems of regulation, the elements of standard
setting, adoption, implementation, oversight and enforcement of standards were redistributed to
state and non-state actors at different administrative levels (Humphrey and Loft, 2013).
Non-state organisations are dependent on their ability to gain acceptance from their constituen-
cies for their standard-setting role and pronouncements. As they lack the legitimacy conferred by
democratic institutions and mechanisms, they need to establish participatory, deliberative and
result-oriented legitimacy, so as to sustain and maintain their private authority (Quack, 2010;
Tamm-Hallström and Boström, 2010). The deliberations mean that the development of standards
and codes at the transnational level involves dense interactions between private and public actors
(Botzem, 2014).
The literature on transnational regulation reveals the importance of political, organisational and
time dimensions within the regulatory arena (Botzem, 2014; Loft et al., 2006; Tamm-Hallström
and Boström, 2010). This study draws upon these dimensions to contextualise the development of
the Code. The first is the political dimension, which entails identifying the actors occupying the
sites of regulation, their regulatory purpose and their patterns of interaction. ‘Actors’ also refer to
individuals with the capacity to make decisive interventions in the regulatory arena (Bocqueraz
and Walton, 2006). The second dimension concerns strategy and organisation, which focuses on
the ability of actors to set boundaries, identify issues, mobilise resources and create new due pro-
cesses and governance structures in the continuous process of standard setting (Botzem, 2014; Loft
et al., 2006; Richardson and Eberlein, 2011). The third is the dimension of time, which sensitises
researchers to the changing institutional contexts and the different forms of legitimacy drawn upon
in the different time periods to maintain private authority (Humphrey et al., 2006).
Method
The authors adopted a qualitative approach to research, building the study on an extensive review
of official documents from IFAC and on other relevant material produced between 1967 and 2006.
Although IFAC was constituted in 1977, earlier relevant reports by the International Coordination
Committee for the Accounting Profession (ICCAP) and the International Working Party (IWP)
were analysed to understand the circumstances that surrounded the Code’s development because
these organisations had important roles in the formation of IFAC. The authors also analysed docu-
ments and associated websites from other organisations with an interest in regulating the ethics of
the accounting profession. To further understand the empirical matter, the authors conducted inter-
views with key actors involved in the work of the Ethics Committee in each of the three time
periods identified. The list of documents used in this study is presented in Appendix 1.
The authors structured the analysis within the same three periods that Humphrey and Loft
(2008) had identified as being when important shifts occurred in IFAC’s strategy and priorities.
The three periods were renamed to suit the context of this article: 1977–1992 (coordination), 1993–
2001 (rise of international standards) and 2002–2006 (intensification of regulation).
The documents were processed in two stages. In the first, an analysis of IFAC’s ethical pro-
nouncements was conducted to determine how the Code has changed over time. The changes made
to the Code’s name, nature (scope, structure and the precision of the Code) and contents were
noted. In the second, the reports of ICCAP and IWP, the annual reports of IFAC and the minutes of
meetings conducted by IFAC’s Ethics Committee and Council, which formed the core of the data,
were analysed to seek explanations on the development of the Code. In this stage, the documents
were divided into the three periods, and a thematic analysis was used to organise, describe and
interpret the documents. The documents were read and reread by both authors to capture the mean-
ing within the data while not separating it from the context (Braun and Clarke, 2006). Initial coding
categories were generated, based on the ideas and concepts of transnational regulation; the catego-
ries were revised during the analysis to capture the patterns within the data.
The data were categorised as political, strategic, organisational and other factors that affected
the development of the Code. The annual reports and the IFAC Council minutes provided data on
strategic and political factors such as IFAC’s goals, work programme, how it positioned itself in the
regulatory arena, interacted with stakeholders and its notions as to the role of the Code. The min-
utes of the Ethics Committee meetings provided data on the organisational factors, which gave
insights into work at the committee level. These factors included the composition of the Ethics
Committee, the organisation of meetings, the definition of the scope and division of work and due
processes. The interactions within the Committee, between the Committee and IFAC leadership as
well as other key stakeholders were reviewed to identify the forces that drove and limited revisions
of the Code. The other documents and sources were used to corroborate or provide more specific
information.
The next section presents the factors and sequences of events that have shaped the development
of the Code over the three periods.
Findings
Setting the stage for international coordination of the accounting profession
The goal of working towards ‘international rapproachment’ through international exchange of views
regarding subjects that concern accounting emerged during the planning of the Second International
Congress of Accountants held in Amsterdam in 1926 (Samuels, 1985: 104).6 It was not, however,
until the 1960s that institutional initiatives to harmonise accounting and auditing practice gained
momentum.7 At the Eighth International Congress of Accountants held in New York in 1962, many
of the articles presented urged that steps be taken to hasten the international development, under-
standing and acceptance of accounting and auditing standards. Paul Grady, chairperson of the
Programme Committee, mandated that each delegation was to develop clear-cut statements of their
jurisdiction-specific standards by the next congress to provide foundational material with an inter-
national basis to promote ‘the highest and soundest of these standards’ (IWP, 1971: 10).
The IWP was formed at the ninth congress held in Paris in 1967 to consider the international
needs of the accounting profession and to present its recommendations at the 10th congress (Olson,
1982).8 The IWP concluded that leadership in the development of international professional stand-
ards should come from individual countries rather than a supra-national administrative body.9 As a
contribution towards the development of accountancy organisations, it arranged for preparation of a
paper to identify principles inherent in establishing a sound accountancy profession.10. Among the
principles was the need for the profession to aim from the outset to achieve the highest professional
and ethical standards and to formulate clear ethical principles and a discipline system where these
principles could be enforced. Nevertheless, it proposed that ICCAP be established to continue the
efforts of the IWP and keep under review the need for an international secretariat (IWP, 1971).
ICCAP was established in 1972 and worked towards the formation of what would become
IFAC.11 ICCAP identified the scope of IFAC’s objectives and work programme, as well as the
terms of reference, composition and authority of each of IFAC’s standing committees. The Final
Report published by ICCAP suggested that a minimum code of professional ethics be established
to provide a sound foundation on which a coordinated worldwide accounting profession could
develop. It also provided key principles to be included in the Code: independence, objectivity,
integrity, competence, technical matters and behavioural standards. The Code was to be completed
within two to three years (ICCAP, 1977).
Coordination: 1977–1992
The establishment of IFAC. IFAC was constituted on 7 October 1977 in Munich, with 63 member
bodies from 51 countries. In accordance with its constitution, IFAC started work to harmonise
international auditing, ethical and educational guidelines in order to develop and enhance a coor-
dinated worldwide profession (Sempier, 1979). IFAC tailored its work programme towards
expanding its membership, encouraging the development of regional organisations and organising
the international congresses as a forum for exchanging ideas and information.12
The senior governing body of IFAC, the Assembly, consisted of one representative from each of
the member organisations. The powers of the Assembly were delegated to the Council. Following
the first meeting of the Assembly and Council, the 12-point work programme prepared by ICCAP
was agreed upon, and four standing committees, including the Ethics Committee, were formed.
The Council appointed the members of the Ethics Committee.
The work programme of the Ethics Committee. Between 1978 and 1986, the Ethics Committee
embarked on an intense programme to develop the Code, which was called Professional Ethics for
the Accountancy Profession. The Code consisted of broad principles constituting the general
framework on professional ethics and 12 Statements of Guidance on Ethics (SGEs), which
explained and provided interpretation and practice guidance on the application of each principle.
The Committee focused its initial efforts on the development of a model code based on mini-
mum harmonisation. This entailed identifying the fundamental principles applicable to the profes-
sion worldwide that were to form the basis of a detailed code. The fundamental ethical principles
were the same as those set forth by ICCAP with the exception of confidentiality regarding informa-
tion on client and employer’s affairs, which was added. Adoption of the Code was voluntary, and
IFAC’s member bodies maintained substantial powers to develop detailed codes at a national level.
This approach accepted diversity in the emphasis on detailed expressions and ethical standards in
different countries.13
Organisation of the Ethics Committee and stakeholder engagement. The first Ethics Committee was
chaired by Arne Lenstrup (Denmark) and composed of representatives from Taiwan, Australia, the
United States, Lebanon and Italy and a secretary from IFAC. In this period, the chairperson played
a crucial role in determining the direction of the development of the Code and the work of the Com-
mittee. Following the completion of the SGEs on the six areas initially identified requiring consid-
eration with respect to ethical behaviour, the Committee took an ad hoc approach to identifying new
areas of guidance and to limiting the scope of its work.14 For example, the Committee included cli-
ents’ monies held in trust, multidisciplinary practices, incompatible business and ethics across bor-
ders on its agenda, whereas it excluded peer review and professional liability.
The rotation of committee membership, which IFAC had introduced in the early 1980s, made it
possible for a more diverse geographical representation within the Ethics Committee. From 1984,
committee members from both developed and developing countries made presentations on the
important issues, regulatory initiatives and challenges of their respective countries.
The Ethics Committee initially interacted informally with regional organisations to share infor-
mation on work programmes and standards and to disseminate its pronouncements. This applied
particularly to the Union Européenne des Experts Comptables Economiques et Financiers (UEC),
which was the only regional organisation that published ethical guidance.15 In 1983, the Ethics
Committee started a more proactive outreach to IFAC members through joint meetings with cor-
responding committees of member bodies and regional organisations, in conjunction with the bian-
nual committee meetings, to reach the ‘grass-roots level’. This provided an important channel for
feedback on implementation problems and on new areas where ethical guidance was needed.
Standard-setting due process. Prior to 1984, due process for developing ethical guidance began
with the Committee determining the areas that required attention. Small groups were assigned
from within the Committee to prepare exposure drafts in those areas. The drafts were circulated
within the Committee, discussed, revised and approved at Committee level. They were then sent to
the Council for approval as exposure drafts. The approved exposure drafts were released to mem-
ber bodies for comments, which were reviewed and taken into consideration for revising the SGEs.
The revised SGEs were sent to the Council for approval before publication.
In 1984, a new accountability mechanism was introduced, giving the Council better control
over the work of IFAC committees. From then, the Ethics Committee had to report on the status
of its work programme and submit new projects to the Planning Committee, which would make
recommendations to the Council for their approval. This mechanism gave the Council and
Planning Committee significant influence on the agenda of the Ethics Committee and the scope
of the Code.16
Changes in the work programme of the Ethics Committee. In November 1983, the Council granted the
Ethics Committee, which was nearing the completion of its original mandate, a change in its terms
of reference. This enabled the Committee to expand its role and ambit in developing the Code and
promoting its acceptance by IFAC member bodies, legitimising the Committee’s existence as a
standing committee of IFAC.
At the August 1985 Ethics Committee Meeting, Bertil Edlund, the third chairperson of the
Committee, stated that the Committee had reached a stage where all the required basic ethical guid-
ance had been developed, setting the stage for the preparation of a comprehensive code of conduct.
Between 1986 and 1990, the Committee redrafted the SGEs, which dealt with different ethical
principles in a fragmented manner, into a comprehensive holistic goal-oriented code. The drafting
took a positive rather than prohibitive approach, streamlining and clarifying the first pronounce-
ment. The wording adopted in the Code now gave more prominence to serving the public interest
and emphasised society’s needs for credible information and assurance on the highest standards of
work by the profession. The revised Code was published in 1992. The Code was divided into two
sections. Part A consisted of the principles applicable to all accountants while Part B applied to
professional accountants in public practice.17 This alleviated the difficulties of drafting a common
code for accountants in public practice and those in business, because each had different ethical
requirements, such as those on independence, they had to follow to perform their work.
External influences on development of the code. Although the revision of the Code was strongly
driven by internal factors, external events also had an important influence on the process. In
November 1983, the need to keep pace with the revisions made on ethical requirements at different
legal jurisdictions in light of the changing economic, legal and regulatory environment was raised
at the Council meeting. Two of the most significant developments reflected in the minutes of the
Ethics Committee meetings were the work of the Anderson Committee and the growing involve-
ment of the International Organisation of Securities Commissions (IOSCO) in the accounting regu-
latory arena.
The Anderson Committee, the Special Committee on Standards of Professional Conduct for
Certified Public Accountants in the United States, was established in 1983 to conduct a compre-
hensive study on the relevance and effectiveness of professional standards. This was due to the
increasing expectations gap and concerns about the quality of audits, which had resulted from
corporate collapses in the late 1970s and early 1980s. The US representative on the Ethics
Committee presented the work of the Anderson Committee at the Ethics Committee meetings,
between 1984 and 1988. The Anderson Committee’s recommendations led to the restructuring
of the ethical code of the American Institute of Certified Public Accountants (AICPA) into two
sections. The first consisted of principles guiding professional conduct, which were positively
stated, goal-oriented, inspirational statements of ethical responsibilities. The second consisted of
enforceable rules of performance and behaviour. The intent was to strengthen the AICPA’s code,
moving it away from its minimum framework. The Ethics Committee reached a consensus in
February 1986 that the work of the Anderson Committee would be helpful in their own project
to restructure the Code. In the February 1987 Ethics Committee meeting, Herman Lowe, prior to
his appointment as the fourth chairperson of the Committee, raised the question as to whether
ethical guidelines issued by IFAC should be aspirational or serve only as a common denomina-
tor. Edlund clarified that IFAC wanted to establish accountancy as a worldwide profession where
any differences are based only on different environments. However, it was felt that this deserved
further discussion.
Another external influence on development of the Code was IOSCO, which was established in
1983 to maintain fair and efficient markets through the promotion of high-quality accounting,
auditing and professional standards. When IOSCO expressed an interest in adopting the International
Auditing Guidelines set by the International Auditing Practices Committee (IAPC), the auditing
standard-setting committee of IFAC as the appropriate auditing standard for multinational filings,
the IAPC and IOSCO began to collaborate.18 In 1989, the IAPC considered a proposed revision to
the preface to auditing guidelines in order to provide a link between the auditing guidelines and the
Code. The Ethics Committee, which was initially reluctant to amend the completed revised draft of
the Code, relented in 1990, given the nature of IFAC’s relationship with IOSCO, the IASC and
other regional bodies. As a result, the Committee included providing additional guidance on the
interests in non-clients, former partners, family relationships and materiality of fees on its agenda
to address IOSCO’s concerns on auditor independence. This compromise created a level of uncer-
tainty about the role of the Code. While the Committee had adopted minimum harmonisation in
developing a model code, the relationship that IFAC was building with regulators was directing the
development of the Code towards meeting capital market needs prioritising independence.
The path the Committee was taking led to debates about how the Code was named. In 1990, the
Committee referred to the Code as a ‘guideline’ due to concerns that ‘code’ would imply a manda-
tory requirement. Within the Code, however, the pronouncement was described as an international
code that set standards of conduct for professional accountants. In 1991, IFAC adopted the term
‘standards’ for its auditing guidelines. The Committee adopted the term ‘code’ in 1992 to convey a
more authoritative status.
The rise of international standards: 1993–2001

Strategic direction of IFAC. By 1992, the membership of IFAC had increased to 106 organisations in
78 countries; it had issued more than 60 pronouncements and was gaining recognition from inter-
national organisations for its work (IFAC, 1992a). IFAC’s 1992 strategic plan towards the twenty-
first century – Strategic Directions for the Accountancy Profession – was based on its global
aspirations and the recommendations of the Bishop Working Group, an independent group com-
missioned to review IFAC’s effectiveness, efficiency and potential for a merger with the IASC
(Humphrey and Loft, 2008). IFAC’s mission statement was extended to include developing and
enhancing the profession to enable it to provide high-quality services in the public interest. The
strategic plan emphasised greater coherence between its activities and its strategic objective to
promote the profession’s record, develop a strong and cohesive international accounting profession
and further efforts to influence capital markets and global trade (IFAC, 1992a).
Internal influences on development of the Code. The five-year strategic plan of the Ethics Committee,
which was closely tied to IFAC’s objectives, included expanding and refining the Code, promoting
the Code through stakeholder engagement, enforcing the Code and assisting developing countries
in understanding and implementing the Code. Although the Committee acknowledged the differ-
ences between countries, a move towards ‘commonality’ was recognised (IFAC, 1992a: 3). The
public interest was defined in the revised Code as ‘the collective well-being of the community of
people and institutions the professional accountant serves’, which included ‘clients, credit gran-
tors, governments, employers, employees, investors, the business and financial community, and
others who rely on the objectivity and integrity of professional accountants to maintain the orderly
functioning of commerce’. (IFAC, 1992b: 5)
To enhance coordination within IFAC, the Executive Committee was established as a sub-com-
mittee of the Council and authorised to carry out council policy and decisions. One member of the
Executive Committee was assigned to each of IFAC’s standing committees to act as a liaison
between the Committee and Council, which promoted greater coordination within IFAC. The
increased coordination between the Ethics Committee and the Financial Management Accounting
Committee led to the development of Part C of the Code, which provided guidance to accountants
employed in business.
The Ethics Committee continued to rely on stakeholder engagement with member bodies to
obtain information on areas of regulatory interest and practice concerns in order to determine new
areas where ethical guidance was required. A recurring issue was the growing interest of regulators
in regulating independence because of the expansion in the size and scope of services offered by
accounting firms. New projects on predatory pricing, opinion shopping, auditor rotation and qual-
ity assurance on multidisciplinary practices were included in the Committee’s agenda.
The Council was concerned with the Ethics Committee’s level of productivity after the comple-
tion of the revised Code in the early 1990s. In 1995, it approved by ballot a proposal to change the
structure and the work programme of the Committee. The Ethics Committee lost its status as a
standing committee and was replaced by an Ethics Advisory Group (EAG). The Council intro-
duced the use of ethics forums and appointed the chairperson of the forum. Forums were consid-
ered a viable option for engaging a wider group of stakeholders compared to the Committee’s
previous stakeholder outreach programme. In 1996, an Ethics Forum was organised to discuss the
development of the Code, independence and enforcement issues. EAG members, who drew on
resources they regarded as appropriate, prepared the papers for the forum. For example, France and
United Kingdom’s input was sought to assist with the independence project. Although the forum
generated wide participation, it could not supplant the standard-setting due process. At the May
1997 Council meeting, the Council approved a change for the EAG; it became the Ethics Committee.
The Committee was given the role to organise ethics forums, consult with and advise the Council
on all aspects of ethical issues and develop appropriate guidance on these issues for the Council’s
approval.
At the November 1999 Council meeting, the Council acknowledged that IFAC needed to raise
its external profile and strengthen its power and authority to convince key regulators of its global
role. The Transnational Auditors Committee (TAC), which comprised the larger accounting firms,
became increasingly important to IFAC as a means to enhance the monitoring and compliance of
IFAC standards. In the early 2000s, several prominent members from the large accounting firms
attended meetings of the Ethics Committee, shaping its agenda and providing another channel
from which the Committee could gain insights into practice issues and the coherence of its stand-
ards with auditing standards.
External influences on development of the code. In the 1990s, the Mexican and Asian financial crises
shifted regulatory development towards the rise of international standards. In the aftermath of the
1997 Asian financial crisis, IFAC became increasingly embedded in the global regulatory network
which was focused on maintaining financial stability and confidence in the capital markets. At the
regional level, the increase in cross-border listings and investment between countries furthered the
European Commission’s goal of harmonising audit regulation in Europe; independence issues
were a key area of focus. These events significantly shifted the priorities of the Ethics Committee
and development of the Code towards meeting the needs of the capital market.
The expansion of the audit framework to accommodate the increase in the scope of assurance
services provided by the accounting firms had led to regulators’ concerns about auditor independ-
ence. It also marked the starting point of many discussions within the Ethics Committee on the
need for a more principle-based framework to deal with the various circumstances involving audi-
tor independence. The principle-based, conceptual approach to independence, also referred to as
the analytical framework or the threats and safeguards approach, originated in the United Kingdom
(Maurice, 1996). This procedural framework guided accountants on how to identify threats to
independence, evaluate their significance and apply safeguards to eliminate the threats or reduce
them to an acceptable level. The adoption of the conceptual framework to independence made the
Code more viable, given the complexity of and rapid development in practice. It also provided the
flexibility needed to meet the expectations of different stakeholders. In its purest state, this approach
would shift the Committee’s emphasis from having to identify prohibited services or activities to
having audit firms or auditors use professional judgement to manage the threats to independence
through the design and implementation of safeguards (Maurice, 1996). At the time, the Federation
of European Accountants (FEE) and the European Commission were working towards a similar
approach to regulating independence.19 Such an approach was discussed in the United States by the
Independence Standards Board in 1997 but was not supported by the Securities and Exchange
Commission (Citron, 2003). In the May 1999 Council meeting, the chairperson of the Ethics
Committee, Marilyn Pendergast, expressed concerns that regulators might not accept the approach
and that member bodies might find the Code ‘unworkable’.
The 1999 Ethics Forum held in Rome became an important arena for addressing these concerns.
Invitees included member bodies, selected regulators, regional and multinational organisations.
The Forum served as an arena to legitimise the adoption of the radically new conceptual approach
to independence, which redesigned the regulation of the profession. Although the discussion sug-
gested broad support for the approach, the participants indicated the need for greater clarity in its
application and definitions of key concepts such as independence, materiality, significance and
threats. This led to an intensive redrafting of the guidance on independence.
In 2001, the conceptual framework to regulating independence was drafted into the Code along
with 35 pages of application notes to cover specific situations on independence. The approach was
similar, but more stringent, than that in the United Kingdom. It had also been drafted to be consist-
ent with the approach adopted by the European Commission. The Code had been formulated with
a more assertive tone, stating that no member or firm was allowed to apply less stringent standards
than those stated in the section of the Code on independence. Part C of the Code was developed to
include guidance on issues such as conflict of loyalties, support for a professional colleague and
professional competence. The glossary was expanded to reflect the development of new services
and new structures introduced in auditing practice. To strengthen the authority of the Code, the
Council published a statement of policy on the implementation and enforcement of ethical require-
ments at the end of the pronouncement.
One discussion that captured the tensions and sentiments of that time was on whether the Code
should be an agent for change with a more proactive and narrowly focused guidance or a more
inclusive document covering all existing practices. John Gruner, the director general of IFAC,
stated that neither extreme was appropriate, although he tended towards the former. He acknowl-
edged that some flexibility was needed since IFAC wanted to set a benchmark rather than mini-
mum standards.
Intensification of regulation: 2002–2007

Strategy and restructuring of IFAC. Shortly after the 1997 Asian Financial Crisis, a series of high-
profile corporate collapses occurred, including that of Enron in 2001. This resulted in a loss of
confidence in financial reporting and auditing, which led to extensive reform in the international
regulatory arena.
In 2002, IFAC was recognised by the regulatory community as an international standard setter
for the accountancy profession. It had a membership of 155 member bodies from 113 countries,
representing about 2.4 million accountants worldwide. To help restore confidence in the account-
ancy profession and to maintain its legitimacy in the regulatory arena, IFAC redoubled its efforts
in areas affecting public interest (IFAC, 2002). It reviewed its mission and governance structure,
established a more transparent and relevant standard-setting process, enhanced accountability
through quality control initiatives and developed guidance to cater to changes in the market place.
In contrast to the 1992 strategic plan that viewed serving the public interest as a consequence of
developing the profession, as Humphrey and Loft (2008) highlighted, the revised mission state-
ment approved by the Council in 2004 placed serving the public interest at the forefront of IFAC’s
responsibilities. IFAC’s (2005) mission was published in the annual report:
To serve the public interest, IFAC will continue to strengthen the accountancy profession worldwide and
contribute to the development of strong international economies by establishing and promoting adherence
to high-quality professional standards … (p. 37)
At the 16th World Congress of Accountants held in Hong Kong, in 2002, the President of IFAC,
René Ricol, acknowledged the need to move towards a system of ‘mixed regulation of the profes-
sion’ (IFAC, 2003b: 6). Following a series of internal and external consultations between IFAC and
the international organisations, a reform proposal was published in September 2003 to strengthen
IFAC’s infrastructure so as to support its global aspirations. The reforms were focused on four
areas: establishment of the Public Interest Oversight Board (PIOB),20 strengthening the standard-
setting processes, creating more transparency in the committees’ structure and nominations process
and implementation of the Member Body Compliance Programme.
The strategy and organisation of the Ethics Committee. IFAC’s reforms introduced greater standardi-
sation to the organisation and the due processes of its standard-setting committees. The reforms
occurred over a period of time. The Ethics Committee was reconstituted and adopted the name ‘the
International Ethics Standards Board for Accountants (IESBA)’ in 2005. The reform proposal clar-
ified that the Ethics Committee was to develop a model code embracing integrity, defined broadly
as putting professional responsibility ahead of clients’ interests (IFAC, 2003b).
The reforms changed the composition of the Ethics Committee. The number of members was to
be increased with the addition of two public members. The members appointed from member body
nominations were to include members from businesses and government, as well as from small and
medium enterprises. The two members representing the large accounting firms were to be replaced
by voting members selected by the IFAC Nominating Committee.21 Furthermore, members of the
Ethics Committee were to declare that they would act with integrity in the public interest in the
discharge of their duties (IFAC, 2003b). This new approach suggests that expertise was being pri-
oritised over geographical representation, in contrast with earlier periods.
The Consultative Advisory Group (CAG) of the Ethics Committee represented the views of
external stakeholders. It was set up in 2004 to advise the Committee on strategy, project priorities,
technical and other relevant matters. The CAG consisted of 17 members, most with a strong inter-
est in the functioning of the financial markets.22 In 2005, the PIOB, a global independent oversight
board and collaborative effort by IFAC and the international financial regulatory community, was
established to oversee the standard-setting due process of the Ethics Committee and the work of
the CAG. The PIOB consisted of 10 members appointed by the Monitoring Group, which consisted
of international financial institutions and regulatory bodies committed to advancing the public
interest in areas related to international audit standard setting.23 Members of the PIOB were to
come from the organisations within the Monitoring Group or their representatives (Humphrey
et al., 2006). Although the PIOB’s influence was not yet evident in the last period analysed for this
study, the stakeholder engagement and oversight structure provided international regulators with
unprecedented influence over the priorities of the Committee.
Ethics Committee work programme. Prior to the implementation of the 2003 reform, the Ethics
Committee had continued to develop the Code. It had started a ‘full rewrite’, making revisions to
apply the conceptual framework to provide guidance on all the fundamental ethical principles
stated in the Code. For this work, the Committee was divided into three subgroups, each revising
one part of the Code. The approach provided a basis to restructure the Code into a set of core prin-
ciples and an application section; the latter would also contain guidance on matters best dealt with
on a rule basis.24 Section 8 of the Code on Independence was revised to take into account imple-
mentation and clarity issues and to align the terminology used with the International Accounting
and Assurance Standards Board (IAASB) assurance framework. The struggles with boundaries of
assurance and the priority to rebuild public confidence in financial auditing contributed to the pro-
posal for the separation of independence guidance for audit engagements and for all other assur-
ance engagements in 2006. The Committee also approved a project to further develop Part C of the
Code, at the suggestion of Jim Sylph, the technical director of IFAC, as about half of its members
were accountants in business.
The impact of the 2003 reform was noted at the first CAG meeting in 2004, when questions
were raised on the Ethics Committee’s strategy on international convergence. In 2005, conver-
gence was added to the Committee’s agenda and was defined as a process towards adoption and
implementation of equivalent standards (i.e. standards might differ in detail from IFAC standards
but would yield similar results). Although the network of firms that conduct transnational audits
was committed to the Code, the differences between countries could pose a barrier to convergence.
This led the Committee to work towards ensuring its provisions on independence benchmarked
favourably with national jurisdictions so as to provide a good foundation for an acceptable global
independence standard. Discussions as to the status of the Code resurfaced at the February 2005
Ethics Committee meeting. However, in this period, the Committee was more committed to the
Code not being a minimum code but rather one that reflected best practice.
External influences on development of the code. In the post-Enron era, an interest in regulating inde-
pendence escalated worldwide. However, the initiatives were fragmented, and the approaches were
diverse. In May 2002, the European Commission published a recommendation on auditor inde-
pendence. In October of the same year, IOSCO published a Statement of Principles on the topic. In
the United States, the Sarbanes-Oxley Act was passed. Reforms in the United States further cata-
lysed the legislative changes in Europe, leading to the publication of Directive 2006/43/EC on
statutory audits of annual and consolidated accounts. Reforms also took place at the national level
in many countries including France, Japan, the United Kingdom and Canada.
In response to the worldwide regulatory reforms, Pendergast presented the conceptual frame-
work approach to regulating independence to important stakeholders in several key events.
Presentations were made to the New York State Senate Higher Education Committee in the United
States, the European regulators in Brussels and other key stakeholders present at the 2002 World
Congress of Accountants. Despite the revisions and the increased stakeholder engagement, the
Committee continued to struggle with the legitimacy of the Code. Comment letters received in
2005 on the exposure draft on independence requirements indicated that regulators and profes-
sional associations were concerned about the clarity, scope and enforceability of IESBA’s inde-
pendence guidance. IOSCO reacted to inclusiveness of the Code and its wide scope of application.
It recommended that the Code have clearer principles and more rigorous, specific requirements
that would support the conducting of high-quality audits on a global basis, which were needed to
meet the needs and expectations of investors in the capital market. A summary of the findings of
this study is presented in Appendix 2.
Discussion
IFAC, as a non-state standard setter, lacks legal authority and relies to a great extent on its members
to voluntarily adopt its pronouncements or powerful actors to endorse them. As IFAC became
increasingly entrenched in its global standard-setting role, the shifts in its priorities led to it making
difficult compromises with international regulators, which resulted in a dissipation of its authority
and power to control its own agenda. This has had a trickle-down effect on the work of the Ethics
Committee.
During the first period studied, IFAC worked towards fulfilling its coordination and harmonisa-
tion objectives. It focused its efforts on the production of various pronouncements, the expansion
of its membership and the fostering of closer relationships with its members. For the Ethics
Committee, control of the agenda and the ‘making’ of the Code resided within IFAC and the
Committee. The Ethics Committee maintained its legitimacy within IFAC by fulfilling its mandate
to develop a model code.
The Committee faced the challenge of balancing the needs of developed and developing coun-
tries, developing a common code for a heterogeneous profession (accountants in public practice
and those in business) and dealing with jurisdictional differences in certain practices such as adver-
tising. Although the Ethics Committee lacked the authority to address many of the problems raised
concerning implementation of the Code at the national level, the minimum harmonisation approach
and voluntary nature of the model Code ameliorated many of the tensions.
In the latter half of the first period, the development of the Code was significantly influenced by
changes in the regulatory environment. Edlund led the Committee towards developing a compre-
hensive code of conduct written in a positive aspirational manner, influenced by the work of the
Anderson Committee. This first revision shifted the regulation of ethics from being based on frag-
mented guidelines to being based on a more holistic approach, paving the way for the conceptual
approach to regulating independence. It also divided the Code into sections applicable to account-
ants in public practice and accountants employed by businesses, allowing each section its own path
of development.
In the second period, the agenda for drafting a model code was subtly changed. The develop-
ment of the Code was heavily influenced by IFAC’s need to ‘sell’ its standards. IFAC regarded
obtaining the endorsement of IOSCO for its standards and Code as a priority, which gave IOSCO
significant influence on the Ethics Committee’s agenda. The Ethics Committee’s level of produc-
tivity and scope of stakeholder engagement did not reach the level of efficiency and effectiveness
desired by the Council, which led to the loss of its legitimacy within IFAC. The Ethics Forum was
introduced and became an important arena to engage international regulators, professional asso-
ciations and accounting firms on a large scale to legitimise the Code and to obtain input for its
development.
IFAC’s success in securing a role in the new international financial architecture (Humphrey
et al., 2009; Loft et al., 2006) contributed to the tensions between developing a Code that catered
to the needs of the capital market and one for developing countries looking for a model code. These
tensions escalated with the expansion of professional services of accounting firms and their
involvement in standard setting. This led to the shifts in the focus of the Committee from meeting
the needs of professional associations to meeting the needs of international regulators and large
accounting firms. Maintaining the balance between fulfilling the needs of these actors grew
increasingly difficult.
Tensions were eased with the introduction of the conceptual framework to regulate independ-
ence. The regulatory nature of the conceptual model provided in some sense a regulatory utopia
(Black, 2008; Black et al., 2007). The broad principles facilitated harmonisation but also granted
the profession greater leeway to exercise professional judgement pertaining to professional con-
duct at the sites of practice. The model allowed the concept of independence to shift from being
dichotomous to one of a continuum with varying degrees of independence, which provided the
profession with the possibility to legitimately continue the expansion of professional services.
Through IFAC’s membership compliance policy, this approach was adopted and implemented in
many jurisdictions. It also granted the Ethics Committee the flexibility to raise the level of the
Code. The concerns expressed by regulators pertaining to the lack of guidance on the application
of the Code and unenforceability led to intensive drafting of application guidelines and, paradoxi-
cally to more rules to govern independence.
In the third period, IFAC had become increasingly embedded in the global financial governance
processes to maintain financial stability. This heavily influenced its goals, due process and priori-
ties. Similar to other private transnational standard setters that emphasised democratic participa-
tion, transparency, independence and stakeholder engagement in the standard-setting process in
order to legitimise their standards (Botzem, 2014; Quack, 2010; Tamm-Hallström and Boström,
2010), IFAC reformed its governance structure and shifted the regulation of accountants towards a
co-regulation paradigm. Innovative regulatory structures designed to involve international organi-
sations in overseeing its public interest activities were instituted in the 2003 reforms, resulting in
the establishment of the PIOB. Importantly, the new structures provided international regulators
unprecedented influence over the development of the Code. The need for the convergence of inde-
pendence standards, which financial stakeholders expressed in light of capital market develop-
ments, further directed the development of the Code towards the needs of the capital market.
To meet the need for a ‘mediating space’ where the conflicting demands of the international
regulators, large accounting firms and developing countries are managed, the Committee extended
the conceptual framework to incorporate all the other fundamental ethical principles, facilitating
the global applicability of the Code. It shifted the paradigm of regulating professional behaviour
from a code that guided the conduct of the profession to one that guided the process of identifying
and evaluating threats to compliance with the fundamental principles and applying necessary safe-
guards to reduce those threats to an acceptable level. It did this while maintaining detailed applica-
tion notes heavily weighted towards independence. This made important changes to the cognitive
and normative dimensions of being ethical for those in accounting profession.
Conclusion
This study extends our understanding of the context within which the IFAC Code of Ethics for
Professional Accountants had developed between 1977 and 2006. It reveals the development of the
Code ‘in action’ in an increasingly complex regulatory landscape characterised by multi-layered,
overlapping governance structures regulating professional accountants.
The nature and contents of the Code had been influenced by IFAC’s global aspirations and
strategy to strengthen its non-state authority. Over time, IFAC has actively repositioned itself in
terms of its role and public interest commitments in order to legitimise and seek endorsement of its
pronouncements. This required the Ethics Committee to balance the needs of transnational account-
ing firms and of international regulators. The model code, which was established between 1977
and 1992 in an effort to coordinate the accounting profession, made it difficult to raise the Code to
a level that would be agreeable to international financial regulators. This led the Committee to
direct its focus towards meeting the needs of the international regulators by adding more rule-
based guidance to the principle-based Code and heavily prioritising independence. The Committee’s
‘stuck-in-the-middle’ strategy was evident from the recurring questions raised within the Ethics
Committee about the role and status of the Code. Although the Code has gained a widespread
adoption, the compromises made it difficult to convince important actors, including IOSCO and
the European Commission, as to the rigour of the Code. This resulted in a regulatory gap, which
opened a space for competition in the regulatory arena.
Regulatory consolidation and development continued well after the 2007 GFC and is still ongo-
ing. In the aftermath of the 2007 GFC, the European Commission shifted towards a more prescrip-
tive approach to regulating the conduct of accountants in public practice. In 2011, it published a
new legislative package, introducing more stringent and prohibitive guidelines that further chal-
lenged the status quo of the Code.25
In the IESBA Strategy and Work Plan, 2014–2018, the Board highlighted its priorities to maintain
a high-quality Code that is widely adopted around the world. At the PIOB’s 10th Anniversary seminar
in 2015, the chairperson of IESBA, Stavros Thomadakis, described the Code as being ‘principles-
based for global use’ and its ultimate objective as being to ‘raise the bar of ethical attitudes’ of account-
ants (Thomadakis, 2015). The development of the Code is taking place in an arena where international
regulators are requiring and specifying more stringent rules to regulate auditors. In this context, there
is concern that the idea of being ethical is being shifted from one that is a matter of professional judge-
ment to one that can be ‘canned’ or standardised, where ethical failures can be subject to a technical
fix. This opens up a need for further research on how professional ethics is conceptualised by the dif-
ferent actors in the regulatory arena and how law and the Code interplay in regulating the conduct of
accountants and their implications on accounting and audit practice. The findings of this study also call
for more discussion on the other fundamental principles and concepts, such as integrity, trust and pub-
lic interest, which are key to professional ethics, to provide a stronger theoretical foundation to further
develop the Code for accountants in public practice and in other fields.
Funding
The authors disclosed receipt of the following financial support for the research, authorship, and/or publica-
tion of this article: This work was supported by the Torsten Söderbergs Stiftelse (Grant/Award Number:
E83/14).
Notes
1. The International Accounting Standards Committee (IASC) was restructured and emerged as the
International Accounting Standards Board (IASB) in 2001 (Zeff, 2012).
2. The Ethics Committee was a standing committee of the International Federation of Accountants (IFAC)
that was set up to develop the Code. It was restructured as an independent board and was renamed
International Ethics Standards Board for Accountants (IESBA) in 2005.
3. The contemporary relevance of historical research has been emphasised in Gomes et al. (2011).
4. Refer to Pierce (2007) for a more detailed literature review.
5. The Sarbanes-Oxley Act and the current European Union (EU) audit reform illustrate such efforts, which
were taken to regulate the conduct of accountants in public practice.
6. The International Congress of Accountants held in St Louis, Missouri, in 1904 has been regarded as the
first accounting congress where international aspects of accounting were exchanged. Samuels (1985)
argued that the objective of the first congress was primarily to raise the status of the profession in the
United States, the agenda was focused mainly on domestic issues, and there was a limited interna-
tional exchange of views. Samuels (1985: 104) cited from the Proceedings of the Second International
Congress (1926: xiii) the objective of working towards ‘international rapproachment’, which he referred
to as ‘harmonisation’ in today’s context.
7. The Accountants International Study Group, the International Working Party and International
Coordination Committee for the Accounting Profession were established in 1966, 1967 and 1972 respec-
tively to advance work in harmonising accounting and auditing.
8. The members of the IWP included members from the Netherlands, the United Kingdom, the United
States, France and Australia (India and Mexico participated in the third meeting). It is beyond the scope
of this article to discuss the work of IWP and ICCAP leading to the formation of IFAC. This article limits
the discussion to the influence these organisations had on the development of the Code.
9. The IWP reported that establishment of an international secretariat was premature as the functional
scope, financial and organisational issues; as well as the relationship with regional organisations were
yet to be resolved.
10. The paper was prepared by the Institute of Chartered Accountants in England and Wales (ICAEW) with
input from IWP members.
11. ICCAP comprised five, 15-year members (Australia, France, Netherlands, the United Kingdom and
the United States) and six, five-year members (Canada, West Germany, India, Mexico, Philippines and
Japan).
12. The International Congress of Accountants was renamed World Congress of Accountants in 1987.
13. For example, the Committee took a position that advertising was not desirable. The SGE, however,
recognised its acceptance in certain jurisdictions and provided guidance on the conditions of acceptable
practice when it was allowed.
14. The six areas included the following: the financial liability of an accountant; advertising, publicity
and solicitation; extension of services; condition of acceptance of an assignment; commission; and fee
charged on the completion of the service provided.
15. Lenstrup, for example, liaised between IFAC and the UEC Ethics Committee. He drew on the work of
UEC in the drafting of SGE 11 Clients’ monies held in trust. In the mid-1980s, the UEC was dissolved
and the Federation of European Accountants (FEE) was constituted without a standard-setting mandate.
FEE recognised IFAC as the appropriate body to set international standards and defined its role as an
organisation to provide strong European input in that context.
16. The impact was felt in 1985 when the Council decided that the project on compliance with technical
and profession standards was beyond the scope of the Committee’s mandate. In 1988, the Planning
Committee brought advertising back to the agenda of the Ethics Committee, requesting a survey be con-
ducted of the rules on advertising. This resulted in the Ethics Committee, after extensive debate, taking a
more neutral stance to reflect the liberalisation of advertising in practice at that time in some countries.
17. Part A – Applicable to all professional accountants: (1) Objectivity, (2) Resolution of Ethical Conflicts,
(3) Professional Competence, (4) Confidentiality, (5) Tax Practice, (6) Cross-Border Activities and (7)
Publicity. Part B – Applicable to professional accountants in public practice: (8) Independence, (9) Fees
and Commissions, (10) Activities Incompatible with the Practice of Public Accountancy, (11) Clients’
Monies, (12) Relations with Other Accountants in Public Practice and (13) Advertising and Solicitation.
18. The IAPC was standing committee of IFAC that was set up to develop auditing standards. The IAPC was
restructured into an independent board and renamed the International Auditing and Assurance Standards
Board (IAASB) in 2002.
19. FEE published ‘The Conceptual Approach to Protecting Auditor Independence’ in 2001; the European
Commission published Commission Recommendation of 16 May 2002 – Statutory Auditors’
Independence in the EU: A Set of Fundamental Principles in 2002.
20. The PIOB was created as a result of collaboration between the WB, the Basel Committee on Banking
Supervision (BCBS), the International Organisation of Securities Commissions (IOSCO), the
International Association of Insurance Supervisors (IAIS) and the Financial Stability Forum and of the
discussion these organisations had with IFAC. Its role is to oversee the standard-setting processes of the
IAASB, International Accounting Education Standards Board (IAESB), IESBA, their respective CAGs
as well as the Compliance Advisory Panel (CAP) of IFAC to ensure processes were conducted in the
public interest (PIOB, 2015). This ‘two-prong approach’ capitalised on the profession’s expertise and at
the same time ensured the public interest was represented. This was intended to mitigate the pitfalls of
the lack of independence of the profession in setting its own standards.
21. The Nominating Committee makes recommendations to the IFAC Board and IFAC Council, as appropri-
ate, on the composition of the IFAC Board and Committees.
22. In 2005, the CAG to the Ethics Committee consisted of the following organisations: IOSCO, BCBS,
WB, International Organisation of Supreme Audit Institutions (INTOSAI), FEE, IAASB CAG, Auditing
Practices Board, Chartered Financial Analyst institute, Eastern Central and South African Federation of
Accountants and Consiglio Nazionale dei Ragionieri.
23. The members of the Monitoring Group are the BCBS, European Commission, Financial Stability Board
(FSB), IAIS, International Forum of Independent Audit Regulators (IFIAR), IOSCO and the WB.
24. The discussion was reflected in the minutes of the March 2002 Ethics Committee Meeting.
25. Reforming the audit market, two legislative instruments were adopted in April 2014 to improve statutory
audits in the EU. The legislative instruments include Regulation (EU) No. 537/2014 of the European
Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of
public-interest entities and repealing Commission Decision 2005/909/EC OJ L 158, 27 May 2014, pp.
77–112 and Directive 2014/56/EU of the European Parliament and of the Council of 16 April 2014
amending Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts OJ L
158, 27 May 2014, pp. 196–226.
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Appendix 1
List of documents used in this study
•• Relevant reports by International Coordination Committee for the Accounting Profession
(ICCAP) and the International Working Party (IWP), 1967–1977;
•• The Constitution of International Federation of Accountants (IFAC), 1977;
•• Minutes of meetings of the Ethics Committee, 1978–2006;
•• Pronouncements issued by the Ethics Committee, 1978–2006;
•• Relevant minutes of meetings of other IFAC committees and the IFAC Council,
1977–2006;
•• IFAC annual reports, 1978–2006;
•• IFAC newsletters, speeches and press releases, 1977–2006;
•• Relevant documents of the European Union (EU), Public Interest Oversight Board (PIOB),
International Organisation of Securities Commissions (IOSCO) and other regulators;
•• Documents from regional organisations such as Federation of European Accountants (FEE;
previously Union Européenne des Experts Comptables Economiques et Financiers (UEC));
•• Documents from other professional publications.
Appendix 2. Summary of findings.
Periods of External shocks and IFAC’s priorities Ethics Committee Important developments
development key developments in the Code
Coordination Economic Coordination of Development of Development and
1977–1992 globalisation and the profession a code of ethics publication of the
capital market Development of through minimum ethical principles and 12
liberalisation auditing, ethics harmonisation SGEs for professional
Development and education Focus stakeholder accountants (1978–1986)
of international guidelines engagement on Revision and publication
standards in member and regional of the Code of Ethics for
accounting bodies through Professional Accountants
joint meetings with (1986–1992)
corresponding
committees of these
organisations
Appendix 2. (Continued)
Periods of External shocks and IFAC’s priorities Ethics Committee Important developments
development key developments in the Code
Rise of 1997 Asian Financial 1992 IFAC Regulatory innovation
Introduction of the
international Crisis Strategic Plan and diffusion of conceptual framework
standards Increase in the scope Promotion of the conceptual approach to Section
1993–2001 of professional the adoption of framework to regulate
8 of the Code to
services IFAC standards independence provide guidance on
Further liberalisation Introduction of ethics
independence with over
of currency and forums to engagement30 pages of application
capital markets key stakeholders notes to cover specific
situations
Intensification Enron and other 2003 IFAC Focus on convergence Revision of the
of regulation corporate scandals Reform of ethical rules Code to apply the
2002–2006 Increase in Development of Increase stakeholder conceptual framework
regulatory interest the International engagement through approach to all the
for the convergence Framework on the due process fundamental principles
of independence Assurance by and the consultative of ethics and further
rules IAASB advisory group to the developed guidance on
Focus on Ethics Committee independence
convergence and
compliance
IFAC: International Federation of Accountants; SGE: Statement of Guidance on Ethics; IAASB: International Accounting
and Assurance Standards Board.

The Changing Face of Ethics - Developing A Code of Ethics For Professional Accountants From 1977 To 2006

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751219

Article Accounting History

The changing face of ethics – 1–21

Professional Accountants from

Amanda Sonnerfeldt and Anne Loft

The role and development of ethical codes

The rise of international standards: 1993–2001

Intensification of regulation: 2002–2007

Tamm-Hallström K and Boström M (2010) Transnational Multi-Stakeholder Standardization: Organizing

Appendix 2. Summary of findings.

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The Changing Face of Ethics - Developing A Code of Ethics For Professional Accountants From 1977 To 2006

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The Changing Face of Ethics - Developing A Code of Ethics For Professional Accountants From 1977 To 2006

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751219

Article Accounting History

The changing face of ethics – ﻿1­–21

Professional Accountants from

Amanda Sonnerfeldt and Anne Loft

The role and development of ethical codes

The rise of international standards: 1993–2001

Intensification of regulation: 2002–2007

Tamm-Hallström K and Boström M (2010) Transnational Multi-Stakeholder Standardization: Organizing

Appendix 2. Summary of findings.

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The changing face of ethics – 1–21