Code of Ethics

for
Members in Industry
CA Amruta Panse
Fundamental Principles for
Professional Ethics
 Threats
Circumstances which threaten
compliance with Fundamental
Principles
 Safeguards to Eliminate or reduce risks to
acceptable levels
1. Safeguards created by the profession, legislation or regulation

• Educational, training and experience

requirements for entry into the
profession.
• Continuing professional development
requirements.
• Corporate governance regulations.
• Professional standards.
• Professional or regulatory monitoring
and disciplinary procedures.
• External review by a legally empowered
third party of the reports, returns,
communications or information
produced by a professional accountant.
 2. Safeguards in the work environment.
• The employing organization’s systems of
corporate oversight or other oversight
structures.
• The employing organization’s ethics and
conduct programs.
• Recruitment procedures in the employing
organization emphasizing the importance of
employing high caliber competent staff.
• Strong internal controls.
• Appropriate disciplinary processes.
• Leadership that stresses the importance of
ethical behaviour and the expectation that
employees will act in an ethical manner.
 2. Safeguards in the work environment. (continued)

• Policies and procedures to implement and

monitor the quality of employee
performance.
• Timely communication of the employing
organization’s policies and procedures, to all
employees and appropriate training and
education on such policies and procedures.
• Policies and procedures to empower and
encourage employees to communicate to
senior levels within the employing
organization any ethical issues that concern
them without fear of retribution.
• Consultation with another appropriate
professional accountant.
Lets look into a Hypothetical CASE STUDY
 Case Study
• A Real Estate Company
• The owner, hereinafter
known as Builder.
• Wants to launch a township
in the outskirts with more
than 1000 flats in the offing.
• A Housing Finance
Company
• Helmed by a CEO.
• Desperately looking for
business.
• CEO facing tough market
competition, real estate
slowdown and BOD
pressure to meet targets.
CEO
Sequence of events
 Circumstances which threaten compliance with
Fundamental Principles
Employee Circumstances Threats faced
CEO Tremendous work pressure, Self Interest, Self Review,
kickback offered by the Builder Advocacy, Intimidation
GM – Construction Pressure from CEO and Self Interest, Self Review,
Finance approval with less than Intimidation
comfortable fundamentals,
probable kickbacks
GM – Housing Pressure from CEO, GM – CF to Self Interest, Self Review,
Finance increase sales for this township Intimidation
to make it lucrative to potential
buyers, Probable kickbacks
Manager and Preparing and recommending Self Review, Advocacy,
Analyst - CF less than comfortable Intimidation
fundamental analysis for the
builder’s profile.
Manager and Sanctioning poor credit quality Self Review, Advocacy,
Analyst - HF loans with uncomfortable Intimidation, Familiarity
ratios
 Safeguards

Employee Safeguards
CEO Communicate with management for reasonable targets,
get more collateral on the CF, not pressurize the
subordinates to sanction poor credit quality loans,
disclose financial interest ( if any) or disassociate from
the organization, in extreme cases.

GM – Construction Finance May opt for consultation with other professionals for
valuing the fundamentals for CF. Try making a
representation to the BOD regarding poor credit quality

GM- Housing Finance Not get bogged down by all the pressure and sanction
loans which meet required credit quality benchmark as
expected by the company standards.
 Section 310 Potential Conflicts
Threats Safeguards
• Act contrary to law or regulation. • Obtaining advice
• Act contrary to technical or professional standards. where appropriate
• Facilitate unethical or illegal earnings management from within the
strategies. employing
• Lie to, or otherwise intentionally mislead (including organization,
misleading by remaining silent) others, in particular: • an independent
• – The auditors of the employing organization; or professional, advisor
– Regulators. or a relevant
• Issue, or otherwise be associated with, a financial or professional body.
non-financial report that materially misrepresents • The existence of a
the facts, including statements in connection with, formal dispute
for example: resolution process
• – The financial statements; within the employing
• – Tax compliance; organization.
• – Legal compliance; or • Seeking legal advice.
• – Reports required by securities regulators.
Section 320 Preparation and Reporting
of Information
Threats Safeguards
• Should maintain information for which the
• may be pressured professional accountant in service is responsible in
(either externally or by a manner that:
the possibility of • (a) Describes clearly the true nature of business
personal gain) to transactions, assets or liabilities;
become associated with • (b) Classifies and records information in a timely
misleading information and proper manner; and
• significance of such • (c) Represents the facts accurately and completely
threats will depend on in all material respects.
factors such as the • If issuance of misleading information is either
source of the pressure significant or persistent, the professional
and the degree to which accountant in service should consider informing
the information is, or appropriate authorities
may be, misleading. • The professional accountant in service may also
wish to seek legal advice or resign.
 Section 330 Acting with Sufficient
Expertise
Circumstances that threaten the
ability
• Insufficient time for properly
performing or completing the
relevant duties.
• Incomplete, restricted or
otherwise inadequate
information for performing
the duties properly.
• Insufficient experience,
training and/or education.
• Inadequate resources for the
proper performance of the
duties.
Safeguards
• Obtaining additional advice or
training.
• Ensuring that there is adequate
time available for performing the
relevant duties.
• Obtaining assistance from
someone with the necessary
expertise.
• Consulting, where appropriate,
with:
• – Superiors within the employing
organization;
• – Independent experts; or
• – A relevant professional body.
 Section 340
Financial Interests
The Value of the interest may be directly
affected by decisions made by the CA in
Service - examples
• A direct or indirect financial interest in
the employing organization
• A profit related bonus and its could be
directly affected by decisions made by
him.
• Direct or indirect share options in the
employing organization.
• Direct or indirect share options in the
employing organization., eligible for
conversion.
• May qualify for share options in the
employing organization or
performance related bonuses if
certain targets are achieved.
Safeguards
• Independent management to determine
the level and form of remuneration of
senior management.
• Disclosure of all relevant interests, and
of any plans to trade in relevant shares
to those charged with the governance
of the employing organization.
• Consultation, where appropriate, with
superiors and relevant professional
bodies.
• Internal and external audit procedures.
• Up-to-date education on ethical issues
and the legal restrictions and other
regulations around potential insider
trading.
• A professional accountant in service should
neither manipulate information
nor use confidential information
for personal gain.
 Section 350
Receiving Offers
Inducements - 1
Examples Safeguards
• How ??
Where such offers have been made,
May take various forms, including • inform higher levels of management
gifts, hospitality, preferential immediately
treatment and inappropriate
appeals to friendship or loyalty. • Inform third parties of the offer –
• How it poses as a threat ? • Advise relatives of relevant threats
and safeguards where they are
• Self- interest threats to potentially in positions that might
objectivity or confidentiality are result in receiving offers of
created, once inducement is inducement
offered.
• Intimidation threats to objectivity
or confidentiality are created,
once inducement is accepted
 Section 350
Making Offers Inducements - 2
Examples Safeguards
• professional accountant in service is • A professional
expected to offer inducements to accountant in service
subordinate the judgment of another should not offer an
individual or organization, influence a inducement to
improperly influence
decision- making process or obtain professional judgment of
confidential information. a third party.
• Such pressure may come from within the • the professional
employing organization or accountant should
• From an external individual or organization follow the principles and
suggesting actions or business decisions guidance regarding
ethical conflict
that would be advantageous to the
resolution
employing organization
Ethical Conflict Resolution
 To sum it up :
• Specific circumstances give rise to
unique threats
• Hence compliance with one or more
of the fundamental principles is
hindered.
• Such unique threats obviously cannot
be categorized.
• In all professional and business
relationships, professional
accountants in service should always
be on the alert for such circumstances
and threats.
 Conclusion
 DO NOT Violate
the Regulatory
Framework

These Ethical Standards are  DO NOT forget to

our strengths to overcome comply with all
all weaknesses. It brought Laws (Ignorance is
us the opportunity of not an excuse)
Swachh Bharat and we can
easily face the challenge of
the parallel jurisdiction likely  DO NOT Indulge In
to be created by the Any Activity which
National Financial Reporting will bring
Authority. (NFRA) DISGRACE TO THE
PROFESSION