CHAPTER 14:

CODES OF PROFESSIONAL ETHICS

Instructor: Dr. Ta Thu Trang

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 CHAPTER 14 – MAIN TOPICS

1. Professional ethics
2. IESBA Code (IESBA - International Ethics Standards Board for
Accountants)
3. ICAEW Code
4. FRC Ethical Standard (FRC - Financial Reporting Council in UK)

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1. PROFESSIONAL ETHICS
1.1. Need for ethics
• Professional accountants have a responsibility to consider the public interest and
maintain the reputation of the accounting profession.
• The IESBA and ICAEW Codes of Ethics help accountants to meet these
obligations by setting out ethical guidance to be followed.
• Key reason accountants need to have an ethical code is that people rely on them
and their expertise.
• It is critical that accountants are independent.
• Compliance with a shared set of ethical guidelines gives protection to
accountants as well as they cannot be accused of behaving differently from other
accountants.
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1. PROFESSIONAL ETHICS (cont.)
1.2. Sources of ethical guidance

• ICAEW members (and trainees) and employees of member firms are subject
to the ICAEW Code of Ethics.
• This is influenced by the guidance of IFAC (of which ICAEW is a member),
which is actually issued by the IESBA (a body of IFAC) as the IESBA Code
of Ethics for Professional Accountants.
• UK auditors are also subject to the FRC's Ethical Standard (FRC: Financial
Reporting Council in the UK - issues auditing standards)

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1. PROFESSIONAL ETHICS (cont.)
1.3. Rules- or principles-based guidance?

The ethical guidance we shall look at tends to be in the form of a

principles-based framework (as being a framework of principles rather than a
set of rules). However, it contains some rules.

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1.3. Rules- or principles-based guidance? (cont.)
Advantages of a framework of principles over a system of ethical rules:

Factor Explanation
Active consideration Actively consider independence for every given situation, rather than just
and demonstration agreeing a checklist of forbidden items.
of conclusions
=> responsible conclusion has been reached about ethical issues.

Broad A principles-based framework prevents auditors interpreting legalistic

interpretation of requirements narrowly to get around ethical requirements. There is an element to
ethical situations which rules engender deception whereas principles encourage compliance.
Individual situations A principles-based framework allows for the variations that are found in
covered individual situations. Each situation is likely to be different.
Flexible to changing A principles-based framework can accommodate a rapidly changing
situation environment, such as the one that assurance providers are involved in.
Can incorporate However, a principles-based framework can contain certain prohibitions where
prohibitions these are necessary. 6
2. IESBA CODE
2.1. Fundamental principles
• Integrity. To be straightforward and honest.
• Objectivity. Not to compromise professional or business judgments because of
bias, conflict of interest or undue influence of others.
• Professional competence and due care. To:
o attain and maintain professional knowledge and skill; and
o act diligently and in accordance with standards.
• Confidentiality. To respect the confidentiality of information acquired.
• Professional behaviour. To comply with relevant laws and regulations and avoid
any conduct that the professional accountant knows or should know might
discredit the profession. 7
2. IESBA CODE (cont.)
2.1. Fundamental principles (cont.)

In marketing and promoting themselves and their work, professional

accountants shall not make:
• exaggerated claims for the services they are able to offer, the qualifications
they possess, or experience they have gained; or
• disparaging references or unsubstantiated comparisons to the work of others.

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2. IESBA CODE (cont.)
2.2. Independence
IESBA Code:
'It is in the public interest and required by the Code that professional accountants in
public practice be independent when performing audit or review engagements'

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2. IESBA CODE (cont.)
2.2. Independence (cont.)

Step 1: Identify threats to compliance with the fundamental principles

Step 2: Evaluate the threats identified

Step 3: eliminating them or reducing them to an acceptable level

Apply where no safeguard is

safeguards available

• eliminate the interest or activities causing

the threat; or
• decline the engagement, or discontinue it.
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2. IESBA CODE (cont.)
2.2. Independence (cont.)

 Independence of mind: The state of mind => allow an individual to act with
integrity, and exercise objectivity and professional scepticism.
 Independence in appearance: The avoidance of facts and circumstances that
are so significant that a reasonable and informed third party would be likely to
conclude that a firm's, or an audit team member's, integrity, objectivity or
professional scepticism has been compromised.

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2. IESBA CODE (cont.)
2.3. Threats and safeguards
 Threats
• Self-interest threat
• Self-review threat
IESBA Code:
5 threats • Advocacy threat
• Familiarity threat
• Intimidation threat

FRC:
• Management threat
additional 6th threat
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2. IESBA CODE (cont.)

2.3. Threats and safeguards (cont.)

 Safeguards

2 general categories of safeguard

Safeguards created by the

Safeguards within the
profession, legislation or
work environment
regulation

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2. IESBA CODE (cont.)

2.3. Threats and safeguards (cont.)

 Safeguards created by the profession, legislation or regulation

 Educational training and experience requirements for entry into the profession
 Continuing professional development requirements
 Corporate governance regulations
 Professional standards
 Professional or regulatory monitoring and disciplinary procedures
 External review by a legally empowered third party of the reports, returns,
communication or information produced by a professional accountant

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2. IESBA CODE (cont.)

2.3. Threats and safeguards (cont.)

 Safeguards in the work environment

 Involving an additional professional accountant to review the work done or

otherwise advise as necessary
 Consulting an independent third party, such as a committee of independent
directors, a professional regulatory body or another professional accountant
 Rotating senior personnel
 Discussing ethical issues with those in charge of client governance
 Disclosing to those charged with governance the nature of services provided and
extent of fees charged
 Involving another firm to perform or re-perform part of the engagement
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3. ICAEW CODE

• The ICAEW Code is relevant to professional accountants in all of their

professional and business activities.

• The ICAEW Code incorporates the IESBA Code of Ethics, but also contains
additional rules deemed appropriate by ICAEW.

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4. FRC ETHICAL STANDARD

• The FRC has issued an ethical standard (ES) with which UK auditors must
comply when carrying out UK audits.

• These standards were developed with regard to the IESBA Code of Ethics and
also the EU audit regulations (2014)

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