ETHICS AT

WORKPLACE
 ETHICAL ISSUE
IN FINANCIAL
REPORTING

Prepared by: Under the Supervision of:

1. Muhammad Turab (Audit cum Risk Compliance Mr. Imran Hayee Khan
Officer) (Commissioner Audit)
2. Usama Mahmood (Audit cum Risk Compliance
Officer)
WORKPLACE
ETHICS
Workplace ethics are the moral guidelines that
an organization as a whole, and the
individuals who comprise it, follow to comply
with state and federal laws.

Professionals are expected to act in a

p r o f e s s i o n a l w a y. H o w e v e r, i t i s p o s s i b l e t o
act within the law but behave in an unethical
w a y.

Every professional body has issued a code of

conduct and code of ethics for its members
and student members. Even when an individual
works for a company or a firm of accountants
that has its own code of ethics, there is a
need for a professional code of conduct. This
is because accountants have a professional
duty to act in the public interest.
 “When the
demands or
needs of a
client or
ACTING IN THE employer

PUBLIC INTEREST appear to be

contrary to
the public
interest,
Professi
An aspect of professional bodies,
which separates a profession from accountants
a trade, is that members of the should
profession are expected to act in
the ‘public interest’. It is
therefore a responsibility of the
consider the
public onal
Eth
accountancy profession ‘not to act interest.”
exclusively to satisfy the needs of
a particular client or employer’.
ics
What exactly is meant by
Public Interest?
Public interest is normally associated
with matters such as;

 detecting and reporting any serious

misdemeanor or crime e.g. Money
laundering;
 protecting health and public safety;
 preventing the public from being
misled by a statement or action by
an individual or an organization;
 exposing the misuse of public funds
and corruption in government;
 revealing the existence of any conflict
of interests of those individuals who
are in a position of power or
influence.
Public
Expectations
The general public has high expectations of
the accountancy profession;

Financial Reporting is Reliable and Accurate

Because many non-accountants do not have much understanding
of accounting issues therefore they rely on accountants to
present ‘fair’ and ‘reliable’ information.

Accountants / Auditors Detect Fraud

There is an expectation gap between what general public
thinks auditor does and what actually auditor does.

Accountancy Profession is Ethical Profession

The public continues to believe that the accountancy
profession is an ethical profession that offers some protection Accountants have a professional duty to act in
to society against the ‘excesses’ of capitalism. the public interest!
Acting Against
Public Interest Accountants might not be
moral by nature, but they
can be taught to think and
To p r e v e n t a c c o u n t a n t s f r o m a c t i n g a g a i n s t t h e p u b l i c act ethically!
interest, the professional accountancy bodies provide rules
of conduct and ethical behavior, with the expectation that
all members should follow the rules.

Why such rules are needed?

Because,

Accountants come into a company bringing a notion of fairness

and justice with them, which they expect to see within the
company.
Breaking the rules by accountants can contribute significantly
to the collapse of a company.

Fairness and justice are abstract concepts that mean different

things to different employees and in different work situations.

To help create a better understanding by accountants of what

is right and wrong, how to identify moral dilemmas, and how
to act whenever an ethical problem arises.
Rules Based vs. Principle Based
Codes of Ethics
Why Specific Rules are not Effective?
Because,
It is impossible to plan for every type of ethical problem that will
arise, and make a rule in advance.
Ethical dilemmas change as the business environment changes
continuously.
A rule book cannot easily make allowances for national and
cultural differences in ethical viewpoint.

Principle-based Code of Ethics

Under this approach, the accountant is required to use

judgement in deciding whether in each case a particular
course of action is a ‘proper’ or ‘ethical’ one.
Professional Behavio
It means complying with relevant
laws, obligations &code of ethics
o f t h e r e l e v a n t p r o f e s s i o n a l b o d y.
 Fundamental Principles
of Codes of Ethics
IESBA’s codes of ethics give guidelines to both:
 Professional Accountants in Public Practice (Consultants) &
 Professional Accountants in Business i.e. employees.

Each professional accountancy body has its own code of ethics, all
codes are similar, because they are based on the IESBA (IFAC) Code.

IESBA’s states that any member body of IFAC (such as ICAP or ACCA)
or any individual firm of accountants may not apply ethical standards
that are less strict than those in the IESBA’s Code.

TRIV
IA
IESBA stands for The International Ethics Standards Board for Accountants.
It is an independent standard-setting body that serves the public interest by setting robust,
internationally appropriate ethics standards for professional accountants worldwide.
The IESBA Code is issued by the Ethics Committee of the International Federation of
Accountants (IFAC), whose members include the professional accountancy bodies of most
countries. ICAP & ACCA is also one of the members of IFAC.
IFAC is the global organization for the accountancy profession dedicated
to serving the public interest by strengthening the profession. IFAC is
comprised of over 175 members and associates in more than 130
countries and jurisdictions, representing almost 3 million accountants
in public practice, education, government service, industry, and
commerce.
Fundamental Principles
of Codes of Ethics (Cont’d)
Whether in job or as consultant, professional accountant has to follow following fundamental principles as defined by IESBA’s codes of ethics:

Integrity
An accountant must be honest and straightforward in his professional and business dealings. e.g. He should not be associated with reports or any other provision of information
that is false, misleading or furnished recklessly.

Objectivity
Professional or business judgement of an accountant should not be influenced by bias, conflict of interest or undue influence from other (seniors).

Professional competence and due care

Duty to attain & maintain professional knowledge and skills at a level that enables to provide a competent professional service to clients or employer

Confidentiality
Accountants must respect the confidentiality of information obtained in the course of their work either as employee or as consultant.

Professional Behaviour
Accountants are required to observe relevant laws and regulations, and to avoid any actions that would discredit the accountancy profession.
THE
ETHICAL DILEMMA
DEFINITION
An ethical conflict (also known as an ethical dilemma) is when two or
more ethical principles demand opposite results in the same situation.

THREATS TO INDEPENDENCE
Threats may be created by a broad range of relationships and circumstances
that may affect compliance with more than one fundamental principles of
ethics.

SAFEGUARDS
Safeguards are actions or other measures that may eliminate threats or
reduce them to an acceptable level.
Threats to
Independence
Threats to compliance with the fundamental ethical principles are grouped into five broad categories:
Self-interest threats, or conflicts of interest
These occur when the personal interests of the professional accountant, or a close family member, are (or could be) affected by the accountant’s decisions or actions.

Self-review threats
This type of threat occurs when a professional accountant is responsible for reviewing some work or a judgement that he was responsible for originally. An extreme example
would be a situation where a professional accountant prepares the annual financial statements for a corporate client and then is appointed to do the audit.

Advocacy threat
This type of threat can occur when an accountant promotes the point of view of a client, for example by acting as a professional witness in a legal dispute.

Familiarity threats
A familiarity threat arises from knowing someone very well, possibly through a long association in business. The risk is that an accountant might become too familiar with a
client and therefore becomes more sympathetic to the client and more willing to accept the client’s point of view.

Intimidation threats
A professional accountant might find that his objectivity and independence is threatened by intimidation, either real or imagined.
 Types of
Ethical Safeguards
Safeguards are
actions or
other measures
that may
estimate
External threats or
reduce them to
Safeguards created by legislation, regulation or the accountancy
an acceptable
profession. e.g. education, continuing professional development &
level.
corporate governance regulation.

Internal
Safeguards established within the work environment. e.g.

Ethical internal controls & whistleblowing procedures etc.

Safeguards ‘Whistleblowing’ means reporting suspicions of illegal or

improper behaviour to a person in authority.
 The Recommended Approach
To Resolve Threats
1 2 3
Identify Threats Evaluate Threats Apply Safeguards

Identify any threat to the Evaluate qualitative factors as Apply appropriate safeguards to
compliance with the well as quantitative factors of eliminate the threat or reduce the
fundamental principles. threats. threat to an insignificant level.

Resolving
If suitable
hical Conflicts safeguards
cannot be
applied, more
drastic action
will be needed,
such as
refusing to
carry out a
professional
Resolving
Ethical Issues
When an ethical issue is involved, an accountant should carry out a
mirror test. If you choose a course of action, are you able to look
yourself in the mirror and see a person who has acted in a moral and
ethical way? Can you justify the decision you have taken from an ethical
perspective?

Three questions that you can ask are as follows:

Is it legal?
If it is not legal, you should not be doing it.

The
What will other people think?
Think about the opinion of people whose views matter to you,
such as close family members. Are you satisfied with the effect
of your action on these people?

Even if the action is legal, it is ethically correct?

Mirror Test
A problem for accountants is often that an action is legal (or
not illegal) but is nevertheless unethical and should be
avoided.
Case Study
Facts Section
Ethical Dilemma:

A fresh accountant in an accounting firm has been assigned to perform tasks, which requires
specialized skills within unrealistic deadlines. Best employee

With unrealistic deadlines – Which cint be extended owing to aminent exam of higher professional
degree

The assigned task involves exposure to potential sensitive information due to the
involvement of Shell Company and Tax Haven.

Unrealistic timeline and inadequate human resources for complex work at booth
ends of hierarchy.

Experience gained from a leading accounting firm is significant for accountant.

Provision of non-assurance services to an assurance client.

Job market – Reporting officer is hard task master ciould not comoromise the
reporting deadline owing to importance of client

Fee from this client forms a significant portion of firm’s revenue

 Threats Threats in
Identific
Given Situation
ation
Lack of Professional
Competence
Reconciliation of holding company with
subsidiary companies require specialized
knowledge, skill and experience.
Intimidation and self-interest
The fact that job market places a significant
premium on exposure to quality accounting work,
the experience gained from a leading accounting
firm, and fact that there are not much openings in
other firms due to stagflation, poses a self-interest.
Integrity & Reputation Risk
Fresh accountant’s inclination to secure a job
with leading accounting firm, leaves him to a
professional dilemma, either to be honest and
straightforward with manger about expansive
nature and complexity of work or silently
accept the work to flatter his manager.
Confidentiality
The reconciliation work includes a shell
company might expose public accountant to
sensitive information. This information might be
of the nature that could bind accountant
professionally or legally to disclose.
 Cheat Sheet !
Facts & Relevant Threats

Lack of
Facts Professional Integrity Self Interest Confidentiality
Competence & Due Care

Unrealistic deadlines.

Significant premium on
experience with the firm.

Lack of Experience

Provision of non-assurance
services to an assurance client.

Fee is significant portion of

firm’s total revenue.
The assigned task involves
exposure to potential sensitive
information.
 Threats Significance of threats in given
Evaluatio
situation
n
in percentage

Lack of Professional Integrity and Self-interest

Competence and Due Care
40% This is the most significant threat in the given 15% The accountant may lie to his manager to conceal
his blunders in the reconciliation of accounts.
situation because the accountant is very Because, he may be afraid of losing his job in an
already stagflated economy.
inexperienced and therefore it is possible that
there are material & pervasive misstatements in
the financial statements.

Intimidation and self-interest Confidentiality

35% The accountant here is a target of not real but 10% The accountant is a new recruit therefore, it is

perceived intimidation that his manager may rebuke expected that he may not be aware of the codes of

him on his mistakes in the financial statements. ethics dealing with the sanctity of clients’
information.

One
Providing necessary training to
fresh accountants.
Six
Suggest the use of a
subcontract bookkeeper with a
constructive attitude.
Cheat Sheet !
Two
Complying with the QCR policies of the
firm regarding ethical practices.
Seven
Contacting the client to
enquire if the deadline might
be extended.
Safeguards
Three
Having other Chartered
Accountant ‘s review.
Eight
Take steps to be dissociated
from the sensitive information
obtained while
Four
Observe confidentiality even in social
gatherings .
Nine
Use separate teams for
assurance and non-assurance
services – build Chinese walls.
Five
Explain to manager that you do not
possess necessary knowledge, skills
& time.
Te n
Get the work done reviewed from an
independent chartered accountant.
 Threat-specific Safeguards
Serial Threats Safeguards
1 Lack of Professional Competence & Due Acquiring an appropriate understanding of the nature of the client's business.
Care Acquiring knowledge of relevant industries or subject matters.
Possessing or obtaining experience with relevant regulatory or reporting requirements.
Assigning sufficient staff with the necessary competencies.
Using experts where necessary.
Agreeing on a realistic time frame for the performance of the engagement.
Complying with quality control policies and procedures designed to provide reasonable assurance that specific
engagements are accepted only when they can be performed competently.
Fresh accountant should explain to his manager that he do not possess sufficient time and experience to complete the work
to a satisfactory standard. However, one should demonstrate a constructive attitude, and suggest how the problem may be
resolved.
Contacting the client to enquire if the deadline might be extended so that the work may be performed when fresh
accountant returns from study leave or when colleague returns from sick leave.

2 Integrity The accountant should not think of preparing the reconciliation recklessly.

3 Intimidation & Self-Interest
If the litigation involves a member of the audit team, removing that individual from the audit team.
Having a professional review the work performed.
Use separate teams for assurance and non-assurance services – build Chinese walls.
Do not assume management responsibility.
Get the work done reviewed from an independent chartered accountant.
The firm shall disclose to those charged with governance of the client the fact that the total of such fees represents more
than 15% of the total fees received by the firm, and discuss which of the safeguards it will apply to reduce the threat to an
acceptable level.

4 Confidentiality Disclose confidential information only when there is a legal or professional right or duty to disclose.
 Course of
A variety of safeguards can be
applied. Action
THERE ARE MANY VARIATIONS OF
Course of
Action
1
Since, the accountant is not himself a chartered accountant, he may not be familiar with the Ethical
Code governing accountant’s activities a member of a professional body. Therefore, if difficult to
evaluate significance of threats, obtain advice from other chartered accountants in his
organization.

2
The accountant should make himself familiar with the firm's policies and assess the extent
to which they do, or do not address, the threats he has identified.

3
In the absence of firm's policies to deal with such issues, the accountant may be obliged to
decline involvement in the work relating to one or other of the clients. He should discuss
the ethical issue with his team leader/partner.
Course of
4
Action(Cont’d)
If the accountant is experiencing difficulties because of an absence of policies within his
firm, or because there is no one available with whom he can discuss ethical issues, it would
be appropriate to call the professional accounting body e.g. ICAP's/ACCA’s ethics helpline
for the opportunity to discuss the issues and obtain advice.

5
If the manager is himself a member of a professional body then it might be worth pointing
out to him that he himself is bound by an ethical code to ensure quality of work. Therefore,
he should help you in completion of work by guiding and reviewing your work and
providing a helping hand.

6
Advise your manager that as a Chartered Accountant aspirant you are bound by the ICAP
code of ethics, and that you would not be prepared to compromise your quality of work for
career advancement.
Course of
7
Action(Cont’d)
Discuss with the senior manager / quality control partner the financial reporting standards
that apply to the transactions and explain the implications of your lack of experience and
competence.

8
Consider speaking to the other directors / partners including non-executive or quality
control partner and seeking their support.

9
If all of these actions produce a negative response then it would be appropriate to consult
the ICAP ethical handbook and/or the Institute.

10
If all of these actions produce a negative response then it would be appropriate to consult
the ICAP ethical handbook and/or the Institute.
 THANKS
FOR COMING