CHAPTER 3 – AUDITING GUIDELINES

This chapter covers the following topics:

1.Introduction to Auditing Standards – International Standards on Auditing (ISA)
2.Malaysian Approved Standards on Auditing (MASA)
3.Companies Act 2016
 Auditor’s Statement : section 261
 Qualification of an auditor : section 263
 Disqualification of an auditor : section 264
 Duties / rights : section 266 & 285
Appointment of auditors for private company : section 267
Power of Registrar for private company : section 268
Appointment of an auditors for public company : section 271
Fixing of auditor’s remuneration : section 274
 Dismissal/removal of auditors : section 276
Special notice : section 277
 Resignation of auditors : Section 281, 282 (1)
4. MIA BY – LAWS (On Professional Ethics, Conducts and Practice)

ACC3573/CHAP3 1
Learning Outcomes
1. To appreciate the importance of auditing standards toward enhancing the
credibility of financial statements.
2. To know that the profession as an accountant is regulated by Malaysian
Institute of Accountants.
3. To know that only a full-pledged accountant can become an auditor
4. To recognise who would be disqualified as an auditor.
5. To know how auditors are appointed and remunerated
6. To know how auditors are removed.
7. To know how auditors can resign.
8. To become familiar with the rights and duties of auditors.
9. To become familiar with the code of ethics to be observed at all times.
10. To know the unprofessional conducts that lead to disciplinary action.

ACC3573/CHAP3 2
Auditing Framework of Company Auditor
in Malaysia
 The Council of the Malaysian Institute Of Accountants (MIA) has determined that
approved Auditing standards for members comprise of:
1. International Standards on Auditing (ISA) issued by the International Auditing
and Assurance Standards Boards (IAASB) of the International Federation of
Accountants (IFAC) and approved for adoption by the MIA.
2. IFAC: It is based in New York, is a non-profit, non-governmental, non-political
international organization of accountancy bodies. MIA is a member of IFAC.
3. Malaysian Approved Standards on Auditing (MASA) is issued by the MIA.
4. Statements or guidelines issued by MIA in relation to recommended practices, which
forms part of the general accepted auditing principles(GAAP).
 IAASB believes the issue of such standards (ISAs) will help improve the degree of
uniformity of auditing practices and related services throughout the world.
 MASA are produced and issued by the MIA as parts of its effort to define standards
of auditing and harmonise auditing practices in Malaysia and are intended to
cover topics that not deal with in an ISA or topics where particular features of
the Malaysia environment warrant a domestic standards.

ACC3573/CHAP3 3
Auditing Framework of Company Auditor in
Malaysia (cont’d)
 In addition to these promulgated standards, Auditing Technical Release
and other statements issued by the Council relating to auditing are to be
regarded as opinions on best current practices and thus form part of
generally accepted auditing principles (GAAP)

 COMPLIANCE WITH APPROVED AUDITING STANDARDS

 Independent auditors are required to use approved Auditing
Standards (ISA) in the conduct of their audits
 Audit report should contain a positive statement to the effect that
the audit has been conducted in accordance with approved Auditing
Standards (ISAs or MASA)
 Any breach of or failure to ISAs/ MASA could be regarded as conduct
discreditable to the profession and could lead to disciplinary action
against the member or members concerned (MIA members).

ACC3573/CHAP3 4
COMPANIES ACT 2016
Auditor’s Statement : section 261
Qualification of an auditor : section 263
 Disqualification of an auditor : section 264
Duties / rights of an auditor : Section 266 & 285
 Appointment of an auditor : section 267 & 271
Fixing of auditor’s remuneration: section 274
 Dismissal/removal : section 276
 Special Notice : section 277
Resignation : section 281, 282 (1)

ACC3573/CHAP3 5
Section 261: Auditor’s Statement
(1) A company that is not required by this Act to lodge financial statements
with the Registrar shall lodge with the Registrar a statement relating to the
financial statements of the company required to be circulated to its
members, signed by the auditor of the company-
(a) stating whether the company has in his opinion kept proper
accounting records and other books during the period covered by
those accounts;
(b) stating whether the financial statements have been audited in
accordance with this Act;
(c) stating whether the auditor’s report on the financial statements
was made subject to any qualification or opinion under any applicable
auditing standards.
(d) stating whether as at the date to which the financial statement has
been made up, the company appeared to have been able to meet its
liabilities as and when the liabilities fall due.

ACC3573/CHAP3 6
Section 263: Qualification Of Auditor
(1) Any person may apply to the Minister charged with the
responsibility for finance to be approved as a company auditor for
the purposes of this Act
 (2)The Minister may, if he is satisfied that the applicant is of good
character and competent to perform the duties of an auditor
under this Act, upon payment of the prescribed fee, approve the
applicant as a company auditor.
 (3) Any approval granted by the Minister under subsection (2)
may be made subject to such limitations or conditions as he
thinks fit and may be revoked at any time by him by the service of
a notice of revocation on the approved person.

ACC3573/CHAP3 7
Section 263
(4) Every approval under this section including a renewal of approval of a
company auditor shall be in force for a period of two years after the date
of issue unless sooner revoked by the Minister.
 (5) The Minister may delegate all or any of his powers under this section
to any person, or body of persons charged with the responsibility for the
registration or control of accountants in Malaysia.
 (6) Any person who is aggrieved with any decision of the Minister or with
the decision of any person or body of persons to whom such Minister has
delegated all or any of his powers under this section may appeal to the
Court.
(7) For the purposes of this section, “person” means a chartered
accountant as defined under the Accountants Act 1967 [Act 94].

ACC3573/CHAP3 8
Conditions to become a company auditor
Approved by the Minister of Finance
- applicants must possess three years of continuous relevant and
sufficient audit experience;
- applicants must have attended the Public Practice Programmed
organised by MIA prior to the submission of the application;
- for applicants who possess the relevant audit experience but are no
longer in the audit field, at the point of submission, he/she must:
(a) possess three years of audit experience in the time period of four
years before submission of the application; and
(b) have attended the Public Practice Programmed organised by MIA
 Applicants must be interviewed by a panel of interviewers which consists of
representatives from Bank Negara, MIA, Companies Commission of Malaysia
and Securities Commission of Malaysia

ACC3573/CHAP3 9
(cont’d)
 Under the same Rules, “public practice services” include:
(1) Auditing including internal auditing
(2) Accounting and all forms of accounting related consultancy;
(3) accounting related investigations or due diligence
(4) forensic accounting
(5) taxation, tax advice and consultancy;
(6) bookkeeping
(7) insolvency, liquidation and receivership;
(8) provision of management information systems and internal
controls;
(9) provision of secretarial services under CA; or
(10) such other services as MIA may from time to time prescribe

ACC3573/CHAP3 10
Section 264: Disqualification of an Auditor

ACC3573/CHAP3 11
(iii) He is---
(A) or his spouse is an officer of the company
(B) a partner, employer or employee of an officer of the company
(C) a partner or employer of an employee of an officer of the company; or
(D) a shareholder or his spouse is a shareholder of a corporation whose
employee is an officer of the company
(iv) He is responsible for or if he is the partner, employer or employee of a
person responsible for the keeping of the register of member or the
register of debenture holders of the company;
(v) He is undischarged bankrupt within or outside Malaysia except with
leave of the Court; or
(vi) He has been convicted of any offence involving fraud or dishonesty
punishable with imprisonment for three months or more.

ACC3573/CHAP3 12
Section 264

(2) For the purposes of subparagraph (1)(c)(iii), a person shall be deemed to be an officer of a company
if he is an officer of a corporation that is deemed to be related to the company by a virtue of section 7 if
he has been officer or promoter of the company or such corporation at any time within preceding
period of twelve months, unless the Minister directs otherwise.

(3) For the purposes of this section, a person shall not be deemed to be an officer by reason only of him
having been appointed as an auditor of a corporation.

(4) A firm of auditors shall not knowingly consent to be appointed, and shall not knowingly act, as an
auditor for any company and shall not prepare, for or on behalf of a company. Any report required by
this Act to be prepared by an approved company auditor unless—

(a) All the partners of the firm resident in Malaysia are approved company auditors
and, where the firm is not registered as a firm under any law for the time being in force, a return
showing the full names and addresses of all the partners of the firm has been lodged with the
Registrar; and

(b) No partner of the firm is disqualified under subsection(1) from acting as the
auditor of the company

ACC3573/CHAP3 13
Section 264
(5) A company shall not appoint a person or a firm as an
auditor unless prior to the appointment

a) that person has consented in writing to act as the

auditor: or
b) in the case of a firm, at least one partner of the firm
has consented in writing.

ACC3573/CHAP3 14
Section 264
(6) The appointment of a firm in the name of the firm as auditors of a company shall take
effect as an appointment as auditors of the company of the person who are partners of that
firm at the time of the appointment.

(7) The appointment of a firm in the name of the limited liability partnership or foreign limited
liability partnership as auditors of a company shall take effect as an appointment as auditors
of the company as if

a)the partners of the limited liability partnership, whether the partners at the time the limited
liability partnership was appointed as auditor or later: and

a)employees of the limited liability partnership who are approved company auditors in that
limited liability partnership, whether employed at the time the limited liability partnership was
appointed as auditor or later, are appointed as auditors of the company.

ACC3573/CHAP3 15
Section 264

(8)Any person who is or any firm which is appointed

as an auditor contravenes subsection (1) or (4)
respectively commits an offence and shall, on
conviction, be liable to a fine not exceeding
RM100,000

ACC3573/CHAP3 16
 Section 266: Powers And Duties of Auditor
SECTION 266(1) Powers and Duties of Auditors
Every auditor of a company shall report to the members on the financial
statement and on the company's accounting and other records relating to
those financial statement and if it is a holding company for which
consolidated financial statements are prepared shall also report to the
members on the consolidated financial statements, and the report shall be-
(a) In the case of a public company, laid before the company at its annual general

meeting; or

(b) In the case of a private company –

(I) Circulated to its members; or

(II) Laid before the company at a meeting of members.

ACC3573/CHAP3 17
cont’d
Section 266 (2)
An auditor shall, in a report under this section, state –
(a)The financial statement (holding company) – the
consolidated financial statement are prepared, his
consolidated financial statements are in his opinion
properly drawn up-
(i) so as to give a true and fair view of the matters
required by section 248 to be dealt with in the financial
statement and, if there are consolidated financial
statements, in the consolidated financial statements;

ACC3573/CHAP3 18
cont’d
(ii) in accordance with this Act so as to give a true and fair view of the company's
affairs, and
(iii) in accordance with the applicable approved accounting standard, or in the
case where financial statement are required to be prepared for or lodged with the
authorities referred to in section 26D of the Financial Reporting Act 1997, such
financial statement shall be made in accordance with the applicable approved
accounting standards subject to any specifications, guidelines or regulations as
may be issued by such authorities:

ACC3573/CHAP3 19
ACC3573/CHAP3 20
cont'
(iii) if the directors have given the particulars of the
quantified financial effect under section 244, his
opinion concerning the particular: and
(iv) in a case to which neither subparagraph (ii) nor (iii)
applies, the particulars of the quantified financial effect
on the financial statement or consolidated financial
statements of the failure to so drawn up the financial
statement or consolidated financial statement, as the
case may be:

ACC3573/CHAP3 21
266(2)(c): in the case of consolidated financial statement,
the names of the subsidiaries, if any, of which he has not
acted as auditor:
266(2)(d): any detect or irregularity in the financial
statements or consolidated financial statements and any
matter not set out in the financial statements without
regard to which a true and fair view of the matters dealt
with by the financial statement or consolidated financial
statements would not be obtained: and
266(2)(e): if he is not satisfied as to any matter referred to in
paragraph (a), (b) or (c), his reasons for not being so
satisfied

ACC3573/CHAP3 22
266 (3) : An auditor of a company shall have a duty to form an opinion to
each of the following matters:
(a) whether he has obtained all the information and explanations that he
required;
(b) whether proper accounting and other records, including registers, have been
kept by the company as required by this Act;
(c) whether the returns received from branch officer of the company are adequate;
and
(d) whether the procedures and methods used by a holding company or a
subsidiary in arriving at the amount taken into any consolidated accounts were
appropriate to the circumstances of the consolidated and the auditor shall
state in his report the particulars of any deficiency, failure or shortcoming in
respect of any matter referred to in this subsection.

ACC3573/CHAP3 23
SECTION 266 (4)

An auditor of a company has a right to access at reasonable time to the accounting and other
records, including registers of the company and is entitled to required from any officer of the
company and any auditor of a related company such information and explanation as he
desires for the purpose of audit.

SECTION 266 (5)

Auditor of a holding company for which consolidates financial statements are required :

(a) has a right of access to all reasonable times to the accounting and other records,
including registers of any subsidiary, if necessary: and

b) is entitled to require any auditor of any subsidiary included in the consolidated financial
statement, expenses of holding company, information in relation to the affairs of such
subsidiaries included in the consolidated financial statement

ACC3573/CHAP3 24
Section 266 (6)
The auditor’s report shall be attached to or endosed on the financial statements or consolidates
financial statements and shall, if any member so requires, be read before the company, open for
inspection by any member in general meeting as required at any time.

Section 266 (7)

An auditor of a company or his agent authorised by him writing is entitled to attend any general
meeting to receive all notices of and other communications relating and to any general meeting
which a member is entited to received and to heard at any general meeting which he attends on
any part of the business of meeting which concern the auditor in his capacity as auditor.

ACC3573/CHAP3 25
Section 266 (8)
If an auditor, in the course of the performance of his duties as auditor of a company, is
satisfied that:
(a)there has been a breach or non-observance of any of provision of this Act :and
(b)the circumtances are such that in his opinion the matter has not been or will not be
adequately dealt with by comment in his report on financial statement consolidated financial
statement or by bringing the matter to the notice of the directors of the company or, if the
company is a subsidiary, of the directors of its holding company.
He shall forthwith report the matter in writing to the Registrar.

Section 266 (9)

In addition to Subsection (8), if an auditor in the course of the performance of his duties as an
auditor of a public company or a company controlled by a public company is of the opinion that
a serious offence involving fraud or dishonesty is being or has been committed against te
company of this Act by offences of the company, he shall forthwith report the matter in writing
to the registrar.

ACC3573/CHAP3 26
Section 266 (10)
No duty to which an auditor of a company may be
subjected to shall be regarded as having been
contravened by reason of his reporting the matter
referred to in subsection (9) in good faith to be
Registrar.

ACC3573/CHAP3 27
Section 266 (11)
For the purpose of subsection (9)-

(a) a company is presumed, unless the contrary is established, to be

controlled by a public company if the public company is entitled to
exercise or control the exercise of not less than 20% of votes attached
to the voting shares of the company; and

(b) “a serious offence involving fraud or dishonesty” means an

offence that is punishable by imprisonment for a term that is not
less than 2 years or the value of the assets derived or likely to be
derived or any loss suffered by the company, member or debenture
holder from the commission of such an offence exceeds RM250,000
and includes offences under section 591, 592, 593, 594 and 595

ACC3573/CHAP3 28
Section 266 (12)
An officer of a corporation who refuses or fails without lawful excuse to allow an
auditor of the corporation, or an auditor of a corporation who refuse or fails
without lawful excuse to allow an auditor of its holding company-

(a) to have access to any accounting and other records, including registers of the
corporation in his custody or control:
(b) to give any information or explanation as and when required under this
section or
(c) otherwise hinders, obstructs or delay an auditor in the performance of his
duties or the exercise of his powers.

commits an offence and shall, on conviction, be liable to imprisonment for a

term not exceeding 3 years or to a fine not exceeding RM500,000 or to both

ACC3573/CHAP3 29
Section 266 (12)

Officer or auditor of corporation who refuse to cooperate.

(a) To access accounting or any record

(b) To give information or explanations

(c) Hide, obstructs or delay auditor performance

SECTION 266 (13)

Any auditor who contravene subsection (8) or (9) commits an offence and shall, on conviction, be
liable to imprisonment to a term not exceed 5 years or fine not exceed RM 3 Million or to both

ACC3573/CHAP3 30
Section 267:
Appointment of Auditors of Private Company
(1) A private company shall appoint an auditor for each financial year of the company

(2) Notwithstanding subsection (1), the Registrar shall have the power to exempt any
private company from the requirement stated in that subsection according to the
condition as determined by the Registrar

(3) The Board shall appoint an auditor of the company

a) In the case of newly incorporated companies, at least thirty days before the end
of the period for the submission of the first financial statement to the Registrar
b) To fill a casual vacancy in the office of auditor

ACC3573/CHAP3 31
(4) The members shall appoint an auditor by ordinary resolution
(a) In the case of subsequent years following the submission of its first financial
statement, during the period for appointing auditors
(b) If the Board fails to appoint an auditor under subsection (3)

(5) An auditor of a private company shall only be appointed in accordance with subsection (3)
or (4)

(6) For the purposes of subsection (4) the period for appointing auditors means the period of
thirty days
(a) Before the end of the period allowed for the lodgement of the previous year
financial statement with the Registrar under subsection 259 (1)

(b) If the previous year financial statements were lodged earlier, before the day on
which financial statements were lodged with the Registrar

(7) The company and every director of the company who contravene this section commit an
offence.

ACC3573/CHAP3 32
Section 268:
Power of Registrar To Appoint Auditors of Private Company
If a private company fails to appoint an auditor, the Registrar may appoint one or more
auditors upon application in writing from any member of the company.

ACC3573/CHAP3 33
Section 271:
Appointment of Auditors of Public Company

(1) An auditor of a public company shall be appointed for each financial year of the
company

(2) Notwithstanding subsection (1), the Board shall appoint an auditor-

a) at any time before the first annual general meeting of the company
b) To fill casual vacancy in the office of the auditor

(3) Any auditor appointed under subsection (2) shall hold office until the conclusion of
a) The first annual general meeting for the appointment under paragraph 2(a)
b) The next annual general meeting for the appointment under paragraph 2 (b)

ACC3573/CHAP3 34
(4) The members shall appoint an auditor by ordinary resolution
(a) At the annual general meeting
(b)If the company should have appointed an auditor at an annual general meeting but
failed to do so
(c) If the Board fails to appoint an auditor under subsection (2)

(5) An auditor of public company should only be appointed in accordance with subsection
(2)
or (4)

(6) The company and every officer who contravene this section commit an offence.

ACC3573/CHAP3 35
Section 274 – Fixing of auditor’s remuneration
(1) The remuneration of an auditor appointed-
(a) by the members of a company shall be fixed by the
members by ordinary resolution or in such manner as the
members may determine:
(b) by the Board shall be fixed by the Board and if not so fixed,
by the company: or
(c) by the Registrar shall be fixed either by the Registrar or the
Board and if not so fixed, by the company.
(2) In this section, “remuneration” includes sums paid in respect of
expenses and payment otherwise than cash.

ACC3573/CHAP3 36
Section 276:
Resolution To Remove Auditor From Office
Section 276.
(1)the members of a company may remove an auditor from office at
any time -
(a) by ordinary resolution at a general meeting; and
(b) in accordance with section 277 (special notice)

(2) this section shall not be taken as depriving the person removed of
the termination of his appointment as an auditor.
(3) an auditor may not be removed from office before the expiration of
his term of office except by resolution under this section.
(4) The registrar must be notified within 14 days if a resolution is
passed to remove an auditor.

ACC3573/CHAP3 37
Section 277:
Special Notice Required For Resolution To Remove Auditor From
Office
(1) A special notice shall be required for a resolution to remove an auditor from office at
general meeting of a company.

(2) Upon receipt of special notice of such an intended resolution, the company shall
immediately send a copy of the notice to the auditor proposed to be removed and the
Registrar.

(3) The auditor may make a representation in writing not exceeding a reasonable length to the
company within 7 days from the receipt of the special notice and may request that prior to the
meeting at which the resolution is to be considered, a copy of the representation be circulated
by the company to every member of the company to whom notice of the meeting is sent/

ACC3573/CHAP3 38
(4) Upon a request of the auditor referred to in subsection (3),the company shall send
a copy of the representation to every member of the company to whom notice of the
meeting is sent.

(5) If a copy of the representation is not sent as required under subsection (4), the
auditor may without prejudice to his right to be heard orally, require that the
representation be read out at the meeting.

(6) A copy of the representation need not be circulated and the representation need
not be read at the meeting if, on the application either of the company or of any other
person claiming to be aggrieved, the Court is satisfied that the auditor is using this
section to secure needless publicity or the matter is defamatory or some other grounds
that the court thinks reasonable.

ACC3573/CHAP3 39
Section 281: Resignation Of Auditor

(1) An auditor of a company may resign his

office by giving a notice in writing to that effect to
the company at its registered office.

(2) A notice of resignation under subsection (1)

shall bring the auditor’s term of office to an end
after 21 days from which the notice is given or
from the date as may be specified in the notice.

ACC3573/CHAP3 40
Section 282:
Notice Of Resignation Of Auditor To Registrar

(1) Where an auditor resigns his office, the company

shall send a copy of the notice to the Registrar
within seven days from the receiving of a notice of
resignation.

(2) The company and every officer who contravene

this section commit an offence.

ACC3573/CHAP3 41
Section 285
Attendance of auditors at general meetings where financial statements are laid.
(1) An auditor of a public company shall attend every annual general meeting
(AGM) where financial statements of the company for financial year are to be laid, so as to
respond according to his knowledge and ability to any question relevant to the audit of
financial statemenrs
(2) In the case of a private company, if due notice is given to an auditor of the intention
to move a resolution requiring the presence of an auditor at a General Meeting of the
company where financial statements of a company for any financial year are to be laid, the
auditor shall attend that meeting so as to respond according to his knowledge and ability
to any question relevant to the audit of the financial statement.

ACC3573/CHAP3 42
cont’d
 3) Auditor who did not attend meeting under subsection (1) and (2) will
commit an offence unless:
a) the auditor is prevented by circumstances beyond his control from
attending the meeting.
b) the auditor arranges for another auditor with knowledge of the audit to
attend and carry out the duties of the auditor at the meeting.
c) if the auditor is a partner to the firm, then the person attending the
meeting in place of the designated auditor is a partner of that firm.
d) the auditor arranges for an agent authorized by the auditor in writing to
attend and carry out the duties of auditor in the meeting.

ACC3573/CHAP3 43
BY-LAWS (On Professional Ethics, Conduct and
Practice) of the Malaysian Institute of Accountants
 MIA By-Laws provide a standard of conduct for accountants for sound professional practice and
for the prevention of illegal and dishonourable practices by members. The following titles are
abstracts of the MIA By-Laws:

 PART I: BY-LAWS ON PROFESSIONAL ETHICS

 PART A: GENERAL APPLICATION
Section 100 Fundamental Principles and Conceptual Framework
Section 100.8-100.12 Threats and safeguards
Section 110 Integrity
Section 120 Objectivity
Section 130 Professional Competence and Due Care
Section 140 Confidentiality
Section 150 Professional Behaviour

 PART B: PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE

Section 200 Introduction
Section 210 Professional Appointment
Section 220 Conflicts of Interest
Section 230 Second Opinions
Section 240 Fees and Other Types of Remuneration

ACC3573/CHAP3 44
BY-LAWS (On Professional Ethics, Conduct and Practice)
of the Malaysian Institute of Accountants
Section 250 Marketing Public Practice Services
Section 260 Gifts and Hospitality
Section 270 Custody of Clients Assets
Section 280 Objectivity – All Services
Section 290 Independence – Assurance Engagements

 PART II: BY – LAWS ON PROFESSIONAL CONDUCT AND PRACTICE

PART A: ALL PROFESSIONAL ACCOUNTANTS
Section 410 Continuing Professional Education

Part B: MEMBERS IN PUBLIC PRACTICE

Section 550 Quality Assurance and Practice Review

 The By-Laws provide a framework to assist its members to identify, evaluate and address
threats to compliance with the fundamental principles, rather than merely comply with a set
of specific rules.

ACC3573/CHAP3 45
PROFESSIONAL ETHICS
 Ethics can be defined as a set of moral principles, values or acceptable
behaviour.

 ETHICAL DILEMMAS – is a situation a person faces in which a decision must be

made about the appropriate behaviour-rational: everybody does it, if its legal, its
ethical & likelihood of discovery and consequences. How to resolve? Obtain the
relevant facts, identify the ethical issues from the fact, determine who is affected by
the outcome of the dilemma and how each person or group is affected etc

 In Malaysia, the council of the MIA issued the by-laws (MIA By-Laws on Professional
Ethics, Conduct and Practice) to be observed by auditors as a standard of conduct in
their daily professional life. The code of professional conduct & ethics is important
for the auditors :
1. to gain public confidence in the quality of their service.
2. to ensure the professional accountants act in a dignified manner
3. to guide and strengthen the relationships between members.

ACC3573/CHAP3 46
Section 100: Fundamental Principles and Conceptual
Framework
100.1 A professional accountant shall comply with the following fundamental principles:
(a)Integrity - to be straightforward and honest in all professional and business
relationships.
(b)Objectivity - to not allow bias, conflict of interest or undue influence of others to
override professional or business judgments.
(c)Professional Competence and Due Care - to maintain professional knowledge and
skill at the level required to ensure that a client or employer receives competent
professional services based on current developments in practice, legislation and
techniques and act diligently and in accordance with applicable technical and
professional standards.
(d)Confidentiality – to respect the confidentiality of information acquired as a result of
professional and business relationships and, therefore, not discloses any such
information to third parties without proper and specific authority, unless there is a legal or
professional right or duty to disclose, nor use the information for the personal advantage
of the professional accountant or third parties.
(e)Professional Behaviour – to comply with relevant laws and regulations and should
avoid any conduct that discredits the profession.

ACC3573/CHAP3 47
100.2 – 100.7 Conceptual Framework Approach
100.2 The circumstances in which professional accountants operate may create
specific threats to compliance with the fundamental principles.
By-Laws establishes a conceptual framework that requires a professional
accountant to identify, evaluate and address threats to compliance with the
fundamental principles. The conceptual framework approach assists
professional accountants in complying with the ethical requirements of the By
Laws and meeting their responsibility to act in the public interest.
100.3 - The professional accountant shall determine whether appropriate
safeguards are available and can be applied to eliminate the threats or reduce
them to an acceptable level.
The professional accountant shall exercise professional judgment and take into
account whether a reasonable and informed third party, weighing all the specific
facts and circumstances available to the professional accountant at the time,
would be likely to conclude that the threats would be eliminated or reduced to an
acceptable level by the application of the safeguards, such that compliance with
the fundamental principles is not compromised.

ACC3573/CHAP3 48
continued
100.4 - A professional accountant shall evaluate any threats to compliance
with the fundamental principles when the professional accountant knows, or
could reasonably be expected to know, of circumstances or relationships that
may compromise compliance with the fundamental principles.
100.5 - A professional accountant shall take qualitative as well as quantitative
factors into account when evaluating the significance of a threat.
When applying the conceptual framework, a professional accountant may
encounter situations in which threats cannot be eliminated or reduced to an
acceptable level, either because the threat is too significant or because
appropriate safeguards are not available or cannot be applied. In such
situations, the professional accountant shall decline or discontinue the specific
professional activity or service involved, or when necessary, resign from the
engagement (in the case of a professional accountant in public practice) or the
employing organization (in the case of a professional accountant in business).

ACC3573/CHAP3 49
Threats and Safeguards
100.8 Threats fall into one or more of the following categories:
(a)Self-interest threat – the threat that a financial or other interest will in
appropriately influence the professional accountant judgment or behavior;
(b)Self-review threat – the threat that a professional accountant will not
appropriately evaluate the results of a previous judgment made, or activity or
service performed by the professional accountant, or by another individual
within the professional accountant’s firm or employing organization, on which
the accountant will rely when forming a judgment as part of performing a
current activity or providing a current service;
(c)Advocacy threat – the threat that a professional accountant will promote a
client’s or employer’s position to the point that the professional accountant’s
objectivity is compromised;
(d)(d) Familiarity threat – the threat that due to a long or close relationship
with a client or employer, a professional accountant will be too sympathetic to
their interests or too accepting of their work; and

ACC3573/CHAP3 50
Threats and Safeguards
(e) Intimidation threat – the threat that a professional accountant will be deterred from
acting objectively because of actual or perceived pressures, including attempts to
exercise undue influence over the professional accountant.

100.9 Safeguards are actions or other measures that may eliminate threats or reduce
them to an acceptable level. They fall into two broad categories:
(a) Safeguards created by the profession, legislation or regulation; and
(b) Safeguards in the work environment.

100.10 Safeguards created by the profession, legislation or regulation include:

(a) Educational, training and experience requirements for entry into the profession.
(b) Continuing professional development requirements.
(c) Corporate governance regulations.
(d) Professional standards.
(e) Professional or regulatory monitoring and disciplinary procedures.
(f) External review by a legally empowered third party of the reports, returns,
communications or information produced by a professional accountant .

ACC3573/CHAP3 51
Threats and Safeguards
100.19 If a significant conflict cannot be resolved, a professional accountant
may consider obtaining professional advice from the relevant professional body
or from legal advisors. The professional accountant generally can obtain
guidance on ethical issues without breaching the fundamental principle of
confidentiality if the matter is discussed with the relevant professional body on
an anonymous basis or with a legal advisor under the protection of legal
privilege.
100.20 If, after exhausting all relevant possibilities, the ethical conflict remains
unresolved, a professional accountant shall, unless prohibited by law, refuse to
remain associated with the matter creating the conflict. The professional
accountant shall determine whether, in the circumstances, it is appropriate to
withdraw from the engagement team or specific assignment, or to resign
altogether from the engagement, the firm or the employing organization.

ACC3573/CHAP3 52
GENERAL APPLICATION S110:Integrity
110.1 Auditors shall at all times be straightforward, honest and sincere in their
approach to their professional work and business relationships. Integrity implies not
merely honesty but fair dealing and truthfulness.

110.2 A professional accountant shall not knowingly be associated with reports, returns,
communications or other information where the professional accountant believes that the
information:
(a) Contains a materially false or misleading statement;
(b) Contains statements or information furnished recklessly; or
(c) Omits or obscures information required to be included where such omission or
obscurity would be misleading.
When a professional accountant becomes aware that the accountant has been
associated with such information, the accountant shall take steps to be
disassociated from that information.

ACC3573/CHAP3 53
S120: Objectivity
120.1 The principle of objectivity imposes an obligation on all professional
accountants not to compromise their professional or business judgment
because of bias, conflict of interest or the undue influence of others.
120.2 A professional accountant may be exposed to situations that may
impair objectivity. It is impracticable to define and prescribe all such
situations. A professional accountant shall not perform a professional
activity or service if a circumstance or relationship biases or unduly
influences the accountant’s professional judgment with respect to that
service.

ACC3573/CHAP3 54
Section 130: Professional Competence and Due Care

130.1 The principle of professional competence and due care imposes the
following obligations on all professional accountants:
(a) To maintain professional knowledge and skill at the level required to
ensure that clients or employers receive competent professional service; and
(b) To act diligently in accordance with applicable technical and professional
standards when performing professional activities or providing professional
services.
130.2 Competent professional service requires the exercise of sound judgment
in applying professional knowledge and skill in the performance of such service.
Professional competence may be divided into two separate phases:
(a)Attainment of professional competence; and
(b)Maintenance of professional competence.

ACC3573/CHAP3 55
Section 130: Professional Competence and Due Care
130.3 The maintenance of professional competence requires a continuing
awareness and an understanding of relevant technical, professional and
business developments. Continuing professional development enables a
professional accountant to develop and maintain the capabilities to perform
competently within the professional environment.
130.4 Diligence encompasses the responsibility to act in accordance with the
requirements of an assignment, carefully, thoroughly and on a timely basis.
130.5 A professional accountant shall take reasonable steps to ensure that
those working under the professional accountant’s authority in a professional
capacity have appropriate training and supervision.

ACC3573/CHAP3 56
S140: Confidentiality
140.1 The principle of confidentiality imposes an obligation on all professional
accountants to refrain from:
(a) Disclosing outside the firm or employing organization confidential
information acquired as a result of professional and business relationships
without proper and specific authority or unless there is a legal or professional
right or duty to disclose; and
(b) Using confidential information acquired as a result of professional and
business relationships to their personal advantage or the advantage of third
parties.
140.2 A professional accountant shall maintain confidentiality, including in a
social environment, being alert to the possibility of inadvertent disclosure,
particularly to a close business associate or a close or immediate family
member.

ACC3573/CHAP3 57
continued
140.3 A professional accountant shall maintain confidentiality of information
disclosed by a prospective client or employer.
140.4 A professional accountant shall maintain confidentiality of information
within the firm or employing organization.
140.5 A professional accountant shall take reasonable steps to ensure that staff
under the professional accountant’s control and persons from whom advice and
assistance is obtained respect the professional accountant’s duty of
confidentiality.
140.6 The need to comply with the principle of confidentiality continues even
after the end of relationships between a professional accountant and a client or
employer. When a professional accountant changes employment or acquires a
new client, the professional accountant is entitled to use prior experience. The
professional accountant shall not, however, use or disclose any confidential
information either acquired or received as a result of a professional or business
relationship.

ACC3573/CHAP3 58
continued
140.7 The following are circumstances where professional accountants are or
may be required to disclose confidential information or when such disclosure
may be appropriate:
(a) Disclosure is permitted by law and is authorized by the client or the employer;
(b) Disclosure is required by law, for example:
(i) Production of documents or other provision of evidence in the course of
legal
proceedings; or
(ii) Disclosure to the appropriate public authorities of infringements of the
law that come to light; and
(c) There is a professional duty or right to disclose, when not prohibited by law:
(i) To comply with the quality review of the Institute ;
(ii) To respond to an inquiry or investigation by the Institute’s Investigation
Committee or Disciplinary Committee or any other regulatory body;
(iii) To protect the professional interests of a professional accountant in legal
proceedings; or
(iv) To comply with technical standards and ethics requirements.

ACC3573/CHAP3 59
continued
140.8 In deciding whether to disclose confidential information, relevant factors
to consider include:
(a)Whether the interests of all parties, including third parties whose interests
may be affected, could be harmed if the client or employer consents to the
disclosure of information by the professional accountant;
(b)Whether all the relevant information is known and substantiated, to the
extent it is practicable; when the situation involves unsubstantiated facts,
incomplete information or unsubstantiated conclusions, professional judgment
shall be used in determining the type of disclosure to be made, if any;
(c)The type of communication that is expected and to whom it is addressed;
and
(d)Whether the parties to whom the communication is addressed are
appropriate recipients.

ACC3573/CHAP3 60
 S150: Professional behaviour
150.1 The principle of professional behavior imposes an obligation on all
professional accountants to comply with relevant laws and regulations and
avoid any conduct that the professional accountant knows or should know may
discredit the profession. This includes conduct that a reasonable and informed
third party, weighing all the specific facts and circumstances available to the
professional accountant at that time, would be likely to conclude adversely
affects the good reputation of the profession.

ACC3573/CHAP3 61
Advertising, Marketing and Promotions
150.2 In advertising, marketing or promoting themselves and their work,
professional accountants shall not bring the profession into disrepute and shall
ensure that such advertisement, marketing or promotional material is:
(a)professionally dignified and in good taste; and
(b)carried out in accordance with the relevant legislation where applicable.

150.3 Professional accountants shall be honest and truthful and shall not:
(a)make exaggerated claims for the services they are able to offer, the
qualifications they possess, or experience they have gained; or
(b)make disparaging references or unsubstantiated comparisons to the work of
others.

ACC3573/CHAP3 62
PART I: BY-LAWS ON PROFESSIONAL ETHICS

PART B:
PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE

200.1 The professional accountant in public practice is encouraged to be alert

for such circumstances and relationships.
200.2 A professional accountant in public practice shall not knowingly engage
in any business, occupation or activity that impairs or might impair integrity,
objectivity or the good reputation of the profession and as a result would be
incompatible with the fundamental principles.

ACC3573/CHAP3 63
Threats and Safeguards
200.3 Compliance with the fundamental principles may potentially be
threatened by a broad range of circumstances and relationships. The nature
and significance of the threats may differ depending on whether they arise in
relation to the provision of services to an audit client and whether the audit
client is a public interest entity, to an assurance client that is not an audit client,
or to a non-assurance client. Threats fall into one or more of the following
categories:
(a)Self-interest;
(b)Self-review;
(c)Advocacy;
(d)Familiarity; and
(e)Intimidation.

ACC3573/CHAP3 64
Threats and Safeguards
200.4 Examples of circumstances that create self-interest threats for a professional
accountant in public practice include:
(a)A member of the assurance team having a direct financial interest in the assurance
client.
(b)A firm having undue dependence on total fees from a client.
(c)A member of the assurance team having a significant close business relationship with
an assurance client.
(d)A firm being concerned about the possibility of losing a significant client.
(e) A member of the audit team entering into employment negotiations with the audit
client.
(f)A firm entering into a contingent fee arrangement relating to an assurance
engagement.
(g)A professional accountant discovering a significant error when evaluating the results of
a previous professional service performed by a member of the professional accountant’s
firm.

ACC3573/CHAP3 65
Threats and Safeguards
200.5 Examples of circumstances that create self-review threats for a professional
accountant in public practice include:
(a)A firm issuing an assurance report on the effectiveness of the operation of financial
systems after designing or implementing the systems.
(b)A firm having prepared the original data used to generate records that are the subject
matter of the assurance engagement.
(c)A member of the assurance team being, or having recently been, a director or officer of
the client.
(d)A member of the assurance team being, or having recently been, employed by the
client in a position to exert significant influence over the subject matter of the
engagement.
(e)The firm performing a service for an assurance client that directly affects the subject
matter information of the assurance engagement.

ACC3573/CHAP3 66
Threats and Safeguards
200.6 Examples of circumstances that create advocacy threats for a professional
accountant in public practice include:
(a)The firm promoting shares in an audit client.
(b)A professional accountant acting as an advocate on behalf of an audit client in
litigation or disputes with third parties.

ACC3573/CHAP3 67
Threats and Safeguards
200.7 Examples of circumstances that create familiarity threats for a professional
accountant in public practice include:
(a)A member of the engagement team having a close or immediate family member who is
a director or officer of the client.
(b)A member of the engagement team having a close or immediate family member who is
an employee of the client who is in a position to exert significant influence over the
subject matter of the engagement.
(c)A director or officer of the client or an employee in a position to exert significant
influence over the subject matter of the engagement having recently served as the
engagement partner.
(d)A professional accountant accepting gifts or preferential treatment from a client, unless
the value is trivial or inconsequential.
(e)Senior personnel having a long association with the assurance client.

ACC3573/CHAP3 68
Threats and Safeguards
200.8 Examples of circumstances that create intimidation threats for a professional
accountant in public practice include:
(a)A firm being threatened with dismissal from a client engagement.
(b)An audit client indicating that it will not award a planned non-assurance contract to the
firm if the firm continues to disagree with the client’s accounting treatment for a particular
transaction.
(c)A firm being threatened with litigation by the client.
(d)A firm being pressured to reduce inappropriately the extent of work performed in order
to reduce fees.
(e)A professional accountant feeling pressured to agree with the judgment of a client
employee because the employee has more expertise on the matter in question.
(f)A professional accountant being informed by a partner of the firm that a planned
promotion will not occur unless the accountant agrees with an audit client’s inappropriate
accounting treatment.

ACC3573/CHAP3 69
Threats and Safeguards
200.12 Examples of firm-wide safeguards in the work environment include:
(a)Leadership of the firm that stresses the importance of compliance with the fundamental
principles.
(b)Leadership of the firm that establishes the expectation that members of an assurance
team will act in the public interest.
(c)Policies and procedures to implement and monitor quality control of engagements.
(d)Documented policies regarding the need to identify threats to compliance with the
fundamental principles, evaluate the significance of those threats, and apply safeguards
to eliminate or reduce the threats to an acceptable level or when appropriate safeguards
are not available or cannot be applied, terminate or decline the relevant engagement.
(e)Documented internal policies and procedures requiring compliance with the
fundamental principles.
(f)Policies and procedures that will enable the identification of interests or relationships
between the firm or members of engagement teams and clients.

ACC3573/CHAP3 70
Threats and Safeguards
(g) Policies and procedures to monitor and, if necessary, manage the reliance on revenue
received from a single client.
(h) Using different partners and engagement teams with separate reporting lines for the
provision of non-assurance services to an assurance client.
(i) Policies and procedures to prohibit individuals who are not members of an
engagement team from inappropriately influencing the outcome of the engagement.
(j) Timely communication of a firm’s policies and procedures, including any changes to
them, to all partners and professional staff, and appropriate training and education on
such policies and procedures.
(k) Designating a member of senior management to be responsible for overseeing the
adequate functioning of the firm’s quality control system.
(l) Advising partners and professional staff of those assurance clients and related entities
from which independence is required.
(m) A disciplinary mechanism to promote compliance with policies and procedures.
(n) Published policies and procedures to encourage and empower staff to communicate
to senior levels within the firm any issue relating to compliance with the fundamental
principles that concerns them.

ACC3573/CHAP3 71
 S210: Professional Appointment
1. Client Acceptance
 Before accepting a new client relationship, a professional accountant in
public practice shall determine whether acceptance would create any
threats to compliance with the fundamental principles.
 The auditor should seek understanding of the background and business
activities of the client and he should consider:
(1) whether the acceptance of the nomination would create any threats to
compliance with the fundamental principles; or
(2) whether there are any client issues that would threaten compliance of
fundamental principles

 If the identified threats are other than clearly significant and the auditor is
able to eliminate or reduce them to an acceptable level, the auditors should
consider accepting the nomination with proper safeguards. Otherwise, the
auditor should decline to enter into the client relationship.

ACC3573/CHAP3 72
Professional Appointment (cont’d)
2. Engagement acceptance
The auditor should only accept audit engagements that he is competent to perform. He should
also consider whether acceptance would create any threats to compliance with the fundamental
principles.
For example: a self-interest threat to professional competence and due care is created if the
engagement team does not possess, or cannot acquire, the competencies necessary to properly carry
out the engagement.
 A professional accountant in public practice shall evaluate the significance of threats and apply
safeguards, when necessary to eliminate them or reduce them to an acceptable level. Such safeguards
may include:
 (a) Acquiring an appropriate understanding of the nature of the client’s business, the complexity of its
operations, the specific requirements of the engagement and the purpose, nature and scope of the
work to be performed.
 (b) Acquiring knowledge of relevant industries or subject matters.
 (c) Possessing or obtaining experience with relevant regulatory or reporting requirements.
 (d) Assigning sufficient staff with the necessary competencies.
 (e) Using experts where necessary.
 (f) Agreeing on a realistic time frame for the performance of the engagement.
 (g) Complying with quality control policies and procedures designed to provide reasonable assurance
that specific engagements are accepted only when they can be performed competently.
When a professional accountant in public practice intends to rely on the advice or work of an expert,
the professional accountant in public practice shall determine whether such reliance is warranted.
Factors to consider include: reputation, expertise, resources available and applicable professional and
ethical standards. Such information may be gained from prior association with the expert or from
consulting others.

ACC3573/CHAP3 73
continued
3. Changes in professional appointment
There are various reasons why a company may decide to change auditors. If an
auditor is requested to replace another auditor currently appointed by the
company, the potential auditor should exercise due care to evaluate the situation
whether to accept the appointment or not.
An existing accountant is bound by confidentiality. Whether that professional
accountant is permitted or required to discuss the affairs of a client with a
proposed accountant will depend on the nature of the engagement and on:
(a) Whether the client’s permission to do so has been obtained; or
(b) The legal or ethical requirements relating to such communications and
disclosure, which may vary by jurisdiction.
210.10A In the case of a financial statement audit engagement, no member in public
practice shall accept nomination for the engagement without enquiring from the
existing auditor as to whether there is any professional or other reason for the
proposed change of which he should be aware before deciding whether or not to
accept the appointment and, if there are such reasons, requesting the existing
auditor to provide him with all the details necessary to enable him to come to a
decision.

ACC3573/CHAP3 74
Professional Appointment (cont’d)
The auditor:
(1) should consider whether there are any professional reasons that threaten
compliance with the fundamental principles; and
(2) may consider talking to the current auditor of the company to establish facts
and circumstances behind the proposed change.
 An existing auditor is bound by the “confidentiality” By-law.
 The extent to which the potential auditor could discuss the affairs of the company
would depend on the nature of the engagement and whether the existing auditor
obtained permission from the company to discuss and reveal the information
required by the potential auditor.
 The extent of the discussion also depends on whether there are any legal or ethical
requirements relating to such communications and disclosure.
 If the company refuses to grant permission for both the current auditor and
potential auditor to discuss or communicate, the potential auditor should normally
decline the appointment.

ACC3573/CHAP3 75
continued
 A professional accountant in public practice will generally need to obtain the
client’s permission, preferably in writing, to initiate discussion with an
existing accountant. Where:

(a)permission is refused, the professional accountant in public practice shall

decline the appointment.
(b) permission is obtained, the existing accountant shall comply with
relevant legal and other regulations governing such requests. Where the
existing accountant provides information, it shall be provided honestly and

unambiguously. If the proposed accountant is unable to communicate with

the existing accountant, the proposed accountant shall take reasonable
steps
to obtain information about any possible threats by other means, such as
through inquiries of third parties or background investigations of senior
management or those charged with governance of the client.

ACC3573/CHAP3 76
continued
210.14 In the case of an audit of financial statements, a professional accountant shall
request the predecessor accountant to provide known information regarding any facts or
other information that, in the predecessor accountant’s opinion, the proposed successor
accountant needs to be aware of before deciding whether to accept the engagement.
Except for the circumstances involving identified or suspected non-compliance with laws
and regulations set out in paragraph 225.31:
(a)If the client consents to the predecessor accountant disclosing any such facts or other
information, the predecessor accountant shall provide the information honestly and
unambiguously; and
(b)If the client fails or refuses to grant the predecessor accountant permission to discuss
the client’s affairs with the proposed successor accountant, the predecessor accountant
shall disclose this fact to the proposed successor accountant, who shall carefully
consider such failure or refusal when determining whether or not to accept the
appointment.

ACC3573/CHAP3 77
S220: Conflicts of interest
 A professional accountant in public practice may be faced with a conflict of
interest when performing a professional service.
 A conflict of interest creates a threat to objectivity and may create threats to
the other fundamental principles. Such threats may be created when:
• The professional accountant provides a professional service related to a
particular matter for two or more clients whose interests with respect to
that matter are in conflict; or
• The interests of the professional accountant with respect to a particular
matter and the interests of the client for whom the professional accountant

provides a professional service related to that matter are in conflict.

 A professional accountant shall not allow a conflict of interest to
compromise professional or business judgment. If element of conflict of
interest is identified, safeguards should be put in place.

ACC3573/CHAP3 78
continued
 Before accepting a new client relationship, engagement, or business
relationship, a professional accountant in public practice shall take reasonable
steps to identify circumstances that might create a conflict of interest,
including identification of:
• The nature of the relevant interests and relationships between the parties
involved; and
• The nature of the service and its implication for relevant parties.

 The process to identify actual or potential conflicts of interest will depend on

such factors as:
• The nature of the professional services provided.
• The size of the firm.
• The size and nature of the client base.
• The structure of the firm, for example, the number and geographic
location of offices.

ACC3573/CHAP3 79
continued
Examples of situations in which conflicts of interest may arise include:
• Providing a transaction advisory service to a client seeking to acquire an audit client of the firm,
where the firm has obtained confidential information during the course of the audit that may be
relevant to the transaction.
• Advising two clients at the same time who are competing to acquire the same company where the
advice might be relevant to the parties’ competitive positions.
• Providing services to both a vendor and a purchaser in relation to the same transaction.
• Preparing valuations of assets for two parties who are in an adversarial position with respect to the
assets.
• Representing two clients regarding the same matter who are in a legal dispute with each other, such
as during divorce proceedings or the dissolution of a partnership. Providing an assurance report for a
licensor on royalties due under a license agreement when at the same time advising the licensee of the
correctness of the amounts payable.
• Advising a client to invest in a business in which, for example, the spouse of the professional
accountant in public practice has a financial interest.
• Providing strategic advice to a client on its competitive position while having a joint venture or similar
interest with a major competitor of the client.
• Advising a client on the acquisition of a business which the firm is also interested in acquiring.
• Advising a client on the purchase of a product or service while having a royalty or commission
agreement with one of the potential vendors of that product or service.

ACC3573/CHAP3 80
S230: Second opinion
230.1 Situations where a professional accountant in public practice is asked to provide a
second opinion on the application of accounting, auditing, reporting or other standards or
principles to specific circumstances or transactions by or on behalf of a company or an
entity that is not an existing client may give rise to threats to compliance with the
fundamental principles.
230.2 When asked to provide such an opinion, a professional accountant in public practice
shall evaluate the significance of any threats and apply safeguards when necessary to
eliminate them or reduce them to an acceptable level. Examples of such safeguards
include seeking client permission to contact the existing accountant, describing the
limitations surrounding any opinion in communications with the client and providing the
existing accountant with a copy of the opinion.
230.3 If the company or entity seeking the opinion will not permit communication with the
existing accountant, a professional accountant in public practice shall determine
whether, taking all the circumstances into account, it is appropriate to provide the
opinion sought.

ACC3573/CHAP3 81
S240: Fees and Other Types of Remuneration
 240.1 When entering into negotiations regarding professional services, a
professional accountant in public practice may quote whatever fee is deemed
appropriate. The fact that one professional accountant in public practice may
quote a fee lower than another is not in itself unethical. Nevertheless, there may
be threats to compliance with the fundamental principles arising from the level
of fees quoted. For example, a self interest threat to professional competence
and due care is created if the fee quoted is so low that it may be difficult to
perform the engagement in accordance with applicable technical and
professional standards for that price.

 240.3 An auditor will charge a fees for his service. Fees charged for assurance
engagements should be a fair reflection of the value of the work involved
and should take into account, among others:
1. The skill and knowledge required for the type of work involved;
2. The level of training and experience of the persons necessarily engaged on
the work;
3. The time necessarily occupied by each person engaged on the work; and
4. The degree of responsibility and urgency that the work entails

ACC3573/CHAP3 82
Contingent Fees and Referral Fees or Commissions
Contingent Fees
Are widely used for certain types of non-assurance engagements . They may, however,
create threats to compliance with the fundamental principles in certain circumstances.
They may create a self-interest threat to objectivity. The existence and significance of
such threats will depend on factors including:
(a) The nature of the engagement.
(b) The range of possible fee amounts.
(c) The basis for determining the fee.
(d) Whether the outcome or result of the transaction is to be reviewed by an
independent third party.

ACC3573/CHAP3 83
Referral Fees or Commissions
 240.5 A professional accountant in public practice may receive a
commission from a third party (e.g., a software vendor) in connection with
the sale of goods or services to a client. Accepting such a referral fee or
commission creates a self-interest threats to objectivity and professional
competence and due care.
 240.6 A professional accountant in public practice may also pay a referral
fee to obtain a client, for example, where the client continues as a client of
another professional accountant in public practice but requires specialist
services not offered by the existing accountant. The payment of such a
referral fee also creates a self-interest threat to objectivity and professional
competence and due care.
 240.8 A professional accountant in public practice may purchase all or part
of another firm on the basis that payments will be made to individuals
formerly owning the firm or to their heirs or estates. Such payments are not
regarded as commissions or referral fees for the purpose of paragraph 240.5
– 240.7 above.

ACC3573/CHAP3 84
 S250: Marketing public practice services
Advertising or Marketing Services
A professional accountant in public practice shall not bring the profession into
disrepute when advertising or marketing public practice services. The
professional accountant in public practice shall be honest and truthful and not:
(a) Make exaggerated claims for services offered, qualifications
possessed or experience gained;
(b) Make disparaging references to unsubstantiated comparisons to the
work of another.
If the professional accountant in public practice is in doubt whether a
proposed form of advertising or marketing is appropriate, the professional
accountant in public practice shall consider consulting with the Institute.

ACC3573/CHAP3 85
S260: Gifts and hospitality
 A professional accountant in public practice, or an immediate or close family
member, may be offered gifts and hospitality from a client.
 Such an offer may create threats to compliance with the fundamental principles.
 For example, a self-interest or familiarity threat to objectivity may be created if a gift
from a client is accepted; an intimidation threat to objectivity may result from the
possibility of such offers being made public.
 The existence and significance of any threat will depend on the nature, value and
intent of the offer.
 Where gifts or hospitality are offered that a reasonable and informed third party,
weighing all the specific facts and circumstances, would consider trivial and
inconsequential, a professional accountant in public practice may conclude that the
offer is made in the normal course of business without the specific intent to influence
decision making or to obtain information.
 A professional accountant in public practice shall evaluate the significance of any
threats and apply safeguards when necessary to eliminate the threats or reduce them
to an acceptable level. When the threats cannot be eliminated or reduced to an
acceptable level through the application of safeguards, a professional accountant in
public practice shall not accept such an offer.

ACC3573/CHAP3 86
S270: Custody of client assets
 A professional accountant in public practice shall not assume custody of client
monies or other assets unless permitted to do so by law and, if so, in
compliance with any additional legal duties imposed on a professional
accountant in public practice holding such assets.
 The holding of client assets creates threats to compliance with the
fundamental principles; for example, there is a self-interest threat to
professional behavior and may be a self interest threat to objectivity arising
from holding client assets.
 A professional accountant in public practice entrusted with client money or
other assets belonging to others shall therefore: (a) Keep such assets
separately from personal or firm assets; (b) Use such assets only for the
purpose for which they are intended; (c) At all times, be ready to account for
those assets, and any income, dividends or gains generated, to any persons
entitled to such accounting; and (d) Comply with all relevant laws and
regulations relevant to the holding of and accounting for such assets
87

ACC3573/CHAP3
Section 280 Objectivity—All Services
 A professional accountant in public practice shall determine when providing any
professional service whether there are threats to compliance with the fundamental
principle of objectivity resulting from having interests in, or relationships with, a client
or its directors, officers or employees. For example, a familiarity threat to objectivity
may be created from a family or close personal or business relationship.
 The existence of threats to objectivity when providing any professional service will
depend upon the particular circumstances of the engagement and the nature of the
work that the professional accountant in public practice is performing.
 A professional accountant in public practice shall evaluate the significance of any
threats and apply safeguards when necessary to eliminate them or reduce them to an
acceptable level. Examples of such safeguards include: (a) Withdrawing from the
engagement team. (b) Supervisory procedures. (c) Terminating the financial or business
relationship giving rise to the threat. (d) Discussing the issue with higher levels of
management within the firm. (e) Discussing the issue with those charged with
governance of the client.

ACC3573/CHAP3 88
S290:Professional independence
 The objective of this section is to assist firms and members of audit teams in applying the
conceptual framework approach described below to achieving and maintaining
independence.
 Independence comprises:
 “Independence in mind” The state of mind that permits the expression of a conclusion
without being affected by influences that compromise professional judgment, thereby
allowing 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,
weighing all the specific facts and circumstances, that a firm’s, or a member of the audit
team’s, integrity, objectivity or professional scepticism has been compromised.
 The conceptual framework approach shall be applied by professional accountants to: (a)
Identify threats to independence; (b) Evaluate the significance of the threats identified;
and (c) Apply safeguards, when necessary, to eliminate the threats or reduce them to an
acceptable level.
 A professional accountant shall use professional judgment in applying this conceptual
framework.

ACC3573/CHAP3 89
PART II: BY-LAWS ON PROFESSIONAL CONDUCT AND
PRACTICE

PART A: ALL PROFESSIONAL ACCOUNTANTS

Section 410: Continuing Professional Education

Section 430: Public Practice Programme

ACC3573/CHAP3 90
S410:Continuing Professional Education (CPE)
 Participation in CPE learning activities is therefore vital in maintaining high
standards and public confidence in the profession.
 All professional accountants are required to complete at least 120 CPE credit
hours of relevant CPE learning for every rolling 3 calendar year period, of
which 60 CPE credit hours should be structured and verifiable, and at least
twenty (20) CPE credit hours of such structured and verifiable CPE learning
should be obtained each calendar year. As the structured CPE credit hours are
calculated on a yearly basis, no transfer can be made for the extra hours
obtained in any other year.
 For the purpose of renewal as an approved company auditor, a minimum of 10
out of 20 structured CPE hours to be completed by the member each year,
must be related to International Standards on Quality Control (ISQC 1),
approved auditing standards and/or approved accounting standards.

ACC3573/CHAP3 91
 Continuing professional education (CPE)
 The essence of CPE to an auditor:
1. To ensure that auditors comply with one of the fundamental principles
of the profession, namely that the auditors have a continuing duty to
maintain professional knowledge and skills so as to ensure that their
clients receive the advantage of competent professional services based on
current developments in practice, standards, legislation and techniques;
2. To ensure that auditors maintain an appropriate level of technical
knowledge and competency;
3. To assist auditors in responding to new technological developments,
changing responsibilities and economics and financial conditions; and
4. To demonstrate to society the concern of the profession for the public
interest by encouraging auditors to acquires the required technical
knowledge and skills in order for them to provide competent
professional services

ACC3573/CHAP3 92
continued
 ACCREDITED STRUCTURED LEARNING ACTIVITIES/PROGRAMMES
(a) CPE courses and conferences organised by the Institute or by the Institute jointly with
other professional bodies or by other organisations endorsed by the Institute.
(b) CPE courses and conferences organised by the recognised bodies as listed in Part II of
the First Schedule to the Act.
(c) Courses and conferences organised by other accredited organisations.
(d) Participation in formal groups and formal self-study programmes designed specifically
for members.
(e) Studies undertaken for the purpose of preparing for a post-qualification course.
(f) Studies undertaken after qualification with a view to preparing the member for a
postgraduate degree - (for example Masters, PhD, professional qualifications).

 UNSTRUCTURED LEARNING ACTIVITIES/PROGRAMMES

(a) Reading technical, professional, financial or business literature.
(b) Use of audio tapes, videotape, correspondence courses etc. that are related or relevant to
the accountancy profession (where no participation is required).
(c) Participation in meetings, briefing sessions or discussion groups not organised by the
Institute or by any of the recognised bodies as listed in Part II of the First Schedule to the
Act and other related bodies, but which have relevance to the accountancy profession.

ACC3573/CHAP3 93
Section 430 Public Practice Programme
430.1 (1) All professional accountants are required to attend and complete the
Institute’s Public Practice Programme prior to his/her application for a
practising certificate
430.2 (1) The Certificate issued for this programme shall only be valid for 3
years from the date of attendance, for a member who has the
intention to apply for an audit licence from the Ministry of Finance.
(2) In the event that the Certificate is no longer valid, the member would

be required to attend the programme again prior to submission for

application for audit license.

ACC3573/CHAP3 94
Acts Discreditable to the Profession
Acts discreditable to the profession or ‘unprofessional conduct’ includes:
1. Gross careless/negligence
2. Neglect in the performance of audit
3. Incapacity in the performance of audit
4. Impropriety in professional conduct.
Any breach of or failure to observe approved auditing standards could be
regarded as a conduct discreditable to the profession.
 Members who fail to observe proper standards of ethics and professional
conduct as set out in these by-laws may be required to answer a complaint
before the Investigation and the Disciplinary Committees of the Institute to
the Malaysian Institute of Accountant (Disciplinary) Rules 2002

ACC3573/CHAP3 95