_____________________________________Chapter 14: Professional Ethics and Codes of Conduct

CHAPTER 14
PROFESSIONAL ETHICS AND CODES OF CONDUCT
Fundamental principles - Applicable to All Chartered Accountants
Integrity
 To be straightforward and honest in all professional and business relationships.
 Integrity also implies fair dealing and truthfulness.
 A CA shall not knowingly be associated with reports, returns, communications or other information where
the CA believes that the information:
- Contains a materially false or misleading statement;
- Contains statements or information furnished recklessly; or
- Omits or obscures information required to be included where it would be misleading

Objectivity
 Not to compromise their professional or business judgment because of bias, conflict of interest or the undue
influence of others.
 A CA shall not perform a professional activity or service if a circumstance or relationship biases or unduly
influences accountant's professional judgment for that service.

Professional Competence and Due Care

 To maintain professional knowledge and skill at the level required to ensure that clients of employers receive
competent professional service; and
 To act diligently in accordance with applicable technical and professional standards when performing
professional activities or providing professional services.
 Diligence encompasses the responsibility to act in accordance with the requirements of an assignment,
carefully, thoroughly and on a timely basis.
 Professional competence may be divided into two separate phases:
- Attainment of professional competence; and
- Maintenance of professional competence. (CPD)
 Maintenance of professional competence requires a continuing awareness and an understanding of relevant
technical, professional and business developments.
 A CA shall take reasonable steps to ensure that those working under the CA’s authority in a professional
capacity have appropriate training and supervision.

Confidentiality
 Refrain from:
- Disclosing outside the firm or employing organization confidential information acquired as a result of
professional and business relationships without proper and specific authority; and specific authority;
- Using that confidential information for personal advantage or advantage of 3rd parties.
 Also maintain confidentiality in a social environment
 Maintain confidentiality of information disclosed by a prospective client or employer.
 Maintain confidentiality of information within the firm or employing organization.
 Take reasonable steps to ensure that staff under the CA's control and persons from whom advice and
assistance is obtained respect the CA’s duty of confidentiality.
Requirements of confidentiality continue even after end of relationships with client/employer.
When a CA changes employment or acquires a new client, he is entitled to use prior experience; however he
shall not use or disclose any such confidential information

Professional Behavior
 complying with relevant laws and regulations and avoiding any action that may bring discredit to the
profession
 not making exaggerated claims relating to their services
 not making disparaging remarks in relation to the service of others

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Circumstances where CAs can disclose confidential information/

Exceptions of Confidentiality
Confidential information may be disclosed in following circumstances:
− If disclosure is permitted by client or
− If disclosure is required by law or court e.g.
o There is illegal activity which is required by law to be disclosed to appropriate public authorities, or
o Court orders chartered accountant to produce documents in a legal proceedings.
− When there is professional right or duty to disclose:
o To comply with Quality Control Review Program of the ICAP.
o To respond to an inquiry/investigation by the ICAP/SECP.
o To comply with requirements of standards or ethics.
o To protect the professional interest of a chartered accountant in legal proceedings.

Factors to Consider in deciding whether to disclose confidential information:

 Whether all the relevant information is known and substantiated.
 Whether the interest of any party (including third parties) could be harmed.
 Type of communication to be made and whom it is to be addressed.

CONCEPTUAL FRAMEWORK APPROACH

 Conceptual framework requires a CA to identify, evaluate, and address threats to compliance with the
fundamental principles.
 CA shall evaluate significance of the threats
(CA shall take qualitative as well as quantitative factors into account in such evaluation)
 If the threats are not at acceptable level, CA shall determine whether appropriate safeguards are available
and can be applied to eliminate or reduce them to acceptable level.
 If threats cannot be eliminated or reduced to an acceptable level, CA shall decline or resigns from the
engagement (for CA in practice) or employing organization (for CA in business)
 When a CA encounters unusual circumstances in application of a specific requirement Code, it is
recommended that the CA consult with a member body or the relevant regulator.

THREATS TO COMPLIANCE WITH THE FUNDAMENTAL PRINCIPLES/

THREATS ON INDEPENDENCE
Self-interest threat:
Threat that judgment or behavior of a team member will be inappropriately influenced because of a financial
interest held by that team member (or his relatives).
Examples:
 Holding financial interest (e.g. shares) in an audit client by team members or their relatives
 Material loan (or guarantee) is obtained from assurance client.
 Contingent fee, Overdue fee, or Undercutting/Undue hospitality.

Self review threat:

Threat that an assurance team member will not appropriately evaluate results of previous work performed by
himself or by another member of his firm.
Examples:
 Performing non-assurance services for audit client (e.g. preparation of accounting records and
financial statements, or valuation of assets and liabilities).
 Providing Temporary Staff Services/Secondment (i.e. lending of staff by firm to audit client).

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Advocacy threat:
Threat that an assurance team member will promote client’s position on a matter (to third parties) and
compromises his own objectivity.
Examples:
 Firm promoting shares of an assurance client.
 Firm acting as an advocate of assurance client in litigations or disputes (e.g. tax disputes) with third
parties.

Familiarity threat:
Threat that an assurance team member will be too sympathetic to the interest of client or too accepting work of
client because of long or close relationship with client.
Examples:
 Family/personal relationships between a member of the audit team and an employee of client.
 Long association with assurance client (e.g. using same team member for more than 3 years).

Intimidation threat:
Threat that an assurance team member is deterred from acting objectively because of fear, threats, undue
influence or pressure.
Examples:
 Threat of dismissal of auditor (or his relative) by client from current or proposed engagement.
 Threat of litigation by client

SAFEGUARDS
(1) Safeguards created by profession, legislation or regulation (by regulators)
 Educational, training and experience requirements for entry into the profession.
 Continuing professional development (CPD) requirements.
 Corporate governance regulations.
 Professional standards.
 Professional / Regulatory monitoring and disciplinary procedures.
 External review by a legally empowered third party of the reports, returns, communications or
information produced by a CA.

(2) Safeguards in the work environment (by firm)

 Internal Quality Control Review of engagements
 Use of separate teams to provide assurance and non-assurance services.
 Rotation of senior team members.
 Terminating financial interest with clients.
 Discussing ethical issues with TCWG.

Typical safeguards normally used in answering the questions in ICAP Exams

(Related to identification of threats and application of Safeguards)
■ Discontinue the relationship / interest.
■ Remove the individual, involved in that relationship/interest, from the team.
■ Discuss (Inform) those charged with governance of the entity
■ Discuss at appropriate level in your firm
■ Involve an independent Chartered Accountant to review the work done by the team

If these safeguards cannot mitigate the risk, withdraw from the engagement.

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ETHICAL CONFLICT RESOLUTION

■ CA should consider following, either individually or collectively:
- Relevant facts
- Ethical issues involved
- Fundamental principles related to the matter in question
- Established internal procedures
- Alternative courses of action.
■ Determine appropriate course of action, weighing consequences of each possible action
■ If matter remains unresolved, CA should consult with other appropriate persons for help in obtaining
resolution.
- E.g. TCWG for conflict with or within any organisation
- May consider obtaining advice from professional body or from legal advisors.
■ CA is suggested to document the
- Substance of the issue;
- Details of any discussions held; and
- The decisions made concerning that issue.
■ If, after exhausting all relevant possibilities, ethical conflict remains unresolved, a CA shall, where
possible, refuse to remain associated with the matter creating the conflict.

Communicating with Those Charged with Governance

■ CA or firm shall determine the appropriate person(s) within entity’s governance structure with whom
to communicate.
■ If CA or firm communicates with a subgroup of TCWG (e.g. an audit committee), the CA or firm shall
determine whether communication with all TCWG is also necessary or not

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