NBAA Seminar on Accounting,

Auditing & Governance

14th– 17th Feb.2023
Malaika Beach Resort & Hotel - Mwanza

IFAC’s Code of Ethics for

Professional Accountants
Paper presented by CPA Joseph Sheffu
Agenda

 Accounting and the Society

 Public Interest Framework
 Ethics – Overview of Code of Ethics for Professional
Accountants

 Governance Principles
 IFAC’s Good Practice Guidance on our role
titled “Evaluating and Improving Governance
in Organisations, 2009”
IESBA’s New Code of Ethics for Professional
Accountants (June 2019)

 Authorised Spending
Understanding the Accountant’s Role
in Corporate Governance
 Accountants (PAIBs & PAPPs) are the Promoters,
Enforcers and Gatekeepers of Good Corporate
Governance and Financial Reporting

 PAPPs Auditors create trust of financial information

 IFAC had developed a Good Practice Guidance on

our role titled “Evaluating and Improving
Governance in Organisations, 2009”
Financial Reporting Ecosystem

Shareholders
Oversight
Bodies
Customers

Competitors Banks
Audited
Financial
Regulators Reports Suppliers

Civil Investors
Communities Societies

Trade Unions
Accounting and the Society
What Is the Accountancy Profession For?
 We support market systems and economy
 Technocrats and trusted advisors
 Society needs information and advice that supports
important decisions that affect organizations, people
and their lives, and society as a whole
 With the privileges and benefits that accompany CPA
status come a variety of obligations, foremost of which
is the obligation to put the good of society ahead of
personal interests.
Accounting and the Society
What Is the Accountancy Profession For?

 Provide, analyse, interpret information to management for

formulation of strategy, planning, decision-making and control
 Measuring performance, record financial transactions and
communicate to stakeholders
 Managing risks, providing internal control and business
assurance
 Creating value through effective use of resources (financial
and non financial) through (a) understanding of drivers of value
to stakeholders and (b) organisational innovation
Accounting and the Society
What Is the Accountancy Profession For?

 An understanding of ethics and governance is essential

to CPAs.

 If CPA are to effectively support management in

discharging their stewardship functions then they should
demonstrate a deeper better understanding of ethics
and corporate governance frameworks and mechanisms
and be proficient in regulatory regimes, compliance
requirements to ensure lawful, ethical and effective
corporate behavior and operations.
Accounting and the Society
What Is the Accountancy Profession For?

 Should have knowledge to identify and resolve

professional and ethical issues

 Should beware of pressures that can affect them in their

daily working life

 Should know what one must do to promote the

confidence and trust of society and hence fulfils the role
as a positive social force
Public Interest Obligation
 The accounting profession is the clearest and most
important case of a profession whose role is paramount for
the economic function; whose commitment to the public
interest is an explicit responsibility; and whose
“professionalism” is embedded and articulated in its Code of
Ethics.
 The effects of ethical behavior in accounting are far
reaching in the economy.
 For sustainability of our profession depends on a our Ethical
conduct. Be seen and be perceived as ethical. Making
judgments that embody ethical fundamental principles
IFAC’s Public Interest Framework (3 criteria)
 Must be mindful of the wider economic, political, and
cultural implications of our work.
 Serving the public interest should be evaluated against
3 criteria. Enabling us to assess whether or not (and the
degree to which) any policy, action, process or condition is in
the public interest.
 1. Consideration of Costs & Benefits for society
 2. Adherence to Democratic Principles and processes
 3. Respect for Cultural & Ethical Diversity
IFAC’s Public Interest Framework (3 criteria)

 All 3 criteria must be met for us to conclude public

interest is served.

 However, the 3 criteria may not always be met to the

same degree, in which case determining what is in the
public interest involves a balance, or trade-off, between
the three.
What is “Interest” - are all things valued by
society.
 Providing sound financial and business reporting to
stakeholders - all parties in the marketplace directly and
indirectly impacted by that reporting;
 Facilitating the comparability of financial reporting and
auditing across different jurisdictions;
 Reducing economic uncertainty in the marketplace and
throughout the financial infrastructure (e.g., banking,
insurance, investment firms, etc.);
 Requiring that CPAs apply high standards of ethical behavior
and professional judgment
What is “Interest” - are all things valued by
society.
 Specifying appropriate educational requirements and
qualifications for CPAs (NBAA emanated from public interest);
 CPAs to enable governments and public sector organizations to
provide their constituencies with sound fiscal information and
decision-making; and
 Providing CPAs in business with the knowledge, judgment, and
the means to contribute to sound corporate governance and
performance management for the organizations they serve.
Some societal challenges CPAs face
 Public higher expectations of our role, can be fair/unfair
 Flawed/outdated laws and regulations e.g., Public Finance &
Tax statutes that have “gaps”
 Political interference and lack of appreciation of our role
 Ineffective Board/Oversight Boards
 Human Capital deficiency, e.g., inside and outside
 Bureaucracy in public services delivery
 Corruption, state capture
 Lack of whistleblower protection
 Under constant Ethical dilemmas
Have strong influence, powerful role,
can be abused
 CPA are part of the chain of Command

 Direct involved in the preparation of strategic plans,

budgets, procurement plans, forecasts and projections

 Being part of the Approval Process for major finance

activities

 Being part of the Authorised Signatories signing Cheques

even where one is not an approver of the spending
Have strong influence, powerful role,
can be abused
 Enabler/Disabler of Fraud; by our action or inaction

 Direct involved in preparation of financial reports aimed

for other users. Messengers of good or bad news

 Forefront in the design, implementation of defense

systems

 Cut across all operations. Called upon to help support answer

queries by Board, oversight
The Code
IESBA’s New Code of Ethics for Professional
Accountants (June 2019)

 Authorised Spending
Overarching Requirements (ORs) /
5+1 Fundamental Principles (FP)

Objectivity Confidentiality

Professional
Integrity Behavior
THE
Prof. CONCEPTUAL
Competence FRAMEWORK Independence
& Due Care
 Enhanced Conceptual Framework
 Dedicated provisions • Exercise
that apply to all professional
CPAs, in all judgement
circumstances when
dealing with Ethics Identify Evaluate • Remain alert for
Threat Threats new information
& Independence
and changes in
(E/I) facts and
Address circumstances
 Establishing Threats
exhaustive list of all • Use the reasonable
E/I circumstances is and informed third
impractical party test
The Conceptual Framework
 Enhanced Conceptual Framework

 Steps of the Conceptual Framework

Key Enhancements to Conceptual Framework

 Identifiedthreats that are not at acceptable level must be

addressed in one of the 3 ways:
 Eliminate the circumstances creating threats
 Apply safeguards; or
 Decline or end engagement/activity

 Emphasis that if threats cannot be addressed, CPA must

decline or stop

 New requirements to “step back” in forming overall conclusion

Other substantive revisions – CPA-IBs
Preparing and presentation of information

 Morecomprehensive provisions addressing CPA-IBs’

responsibilities when preparing or presenting information

 Prohibitionon exercising discretion when preparing or

presenting information with intent to mislead or inappropriate
influence contractual or regulatory outcomes

 Enhancedguidance to assist CPA-IB in disassociating from

misleading information
Other substantive revisions – CPA-IBs
Pressure to Breach Fundamental Principles
 Prohibition
on allowing pressure
from others to result in a breach of
Fundamental principles
 Prohibitionon placing pressure on
others that would lead them to
breach Fundamental Principles
 Guidance to assist in navigating
situations involving pressure
 Give examples of ‘Pressure’ Red
Flags
Other substantive revisions – CPA-IBs & CPA-PPs
Inducements, Incl. Gift & Hospitality
 Clarificationsabout appropriate
boundaries for offering and
accepting of inducements

 Prohibition on offering or accepting

inducements with intent to
improperly influence behavior

 Applicationof conceptual framework

when no actual or perceived
improper intent
Other substantive revisions – Independence
Long Association

 Strengthen general provisions addressing long association

A strengthened Partner rotation regime for PIE audits,
including:
Extant Revised
7 years time-on: all KAPs No change
5 years cooling-off: EP
3 years cooling-off: EQCR
2 years cooling-off: all KAPs
2 years cooling-off: KAPs
Other substantive revisions
Applicability of CPA-IB provisions to CPA-PPs

 New requirement and clearer guidance for CPA-PPs that

relevant CPA-IB provisions in Part 2 are applicable to them
when they perform professional activities pursuant to their
relationship with the Firm, whether as:

 Whether as contractor, employees or owners of the firm

 Illustrations of situations in which provision in part 2 apply to a

CPA-PP.
Other substantive revisions
Professional judgement and professional Scepticism
 New guidance:
 Forall CPAs to emphasize the
importance of obtaining an
understanding of the facts and
circumstances when exercising
professional judgement

 ForCPA-PP - that explains how

compliance with the FPs supports
the exercise of professional
skepticism
Examples of Threats -CPAIB & CPAPP

CPAIB CPAPP
Conflict of Interest X X
Preparation and presentation of Information X
Acting with Sufficient Expertise X
Financial Interests, Compensation, Incentives linkedX X
Inducements, Gifts & Hospitality X X
Responding to NOCLAR X X
Pressure to Breach Fundamental Principles X X
 Examples of threats -Unique to CPAPP

Second Opinion X
Fees and Other Type of Remunerations X
Custody of Client's Assets X
Actual & Threatened Litigation X
Business Relationship X
Family and Personal Relationship X
Recent Services with Audit Client X
Serving as Director X
Employments with Client X
Temporary Assignments X
Long Association of Personnel with audit client X
Examples of threats - CPAPP

NON AUDIT SERVICES – largely prohibited – with

exceptions
Accounting & Booking X
Administrative Support X
Valuation services X
Tax services X
Internal Audit X
IT Services X
Litigation support X
Legal services X
Recruitment services X
Corporate Finance X
Conclusion

 Most Corporate failures globally are attributed to

Corporate Governance failure including unethical
conduct
 CPAs should always be conscious of their unique public
interest obligations
 CPAs should understand that they serves two masters –
the profession Vs. what is expected by their employers
 CPAs have to be conscious of their individual actions or
inaction and implication to the profession as a whole
Conclusion

 All should regularly update and enhance their

knowledge of emerging Ethics and Corporate Governance
developments
 The International Code of Ethics for Professional
Accountants, including International Independence
Standards, establishes the standard of behavior
expected of a CPA. That is our public interest
responsibility.
 We should regularly evaluate our organisations for
effectiveness in these aspects