CODE OF ETHICS FOR

PROFESSIONAL
ACCOUNTANT
LEARNING OBJECTIVES
▪ Understand the basis and the need for professional ethics
▪ Know the Revised Code of Ethics
What is Ethics?
ETHICS
▪ Consist of moral principles and standards of conduct
▪ Branch of philosophy that deals with the study of the rightness and wrongness of human
actions.
▪ It can be in society as a whole or on particular groups within the society
▪ Well-founded standards of right and wrong that prescribe what humans ought to do usually in
terms of rights, obligations, benefits to society, fairness, or specific virtues
ETHICS
▪ Study of the development of one’s ethical standards.
▪ Continuous effort of studying our own moral beliefs and our moral conduct and striving to
ensure that we, and the institutions we help to shape, live up to standards that are reasonable
and solidly based.
What is Professional
Ethics?
PURPOSE OF PROFESSIONAL
ETHICS
▪ To ensure high standards of competence among a group’s members
▪ To regulate and strengthen their relationships
▪ To promote and protect the image of the profession and the welfare of the community
PROFESSIONAL ETHICS
▪ A mixture of moral and practical concepts, with a sprinkling of exhortation to ideal conduct
designed to invoke “right action” on the part of the members of the profession concerned – all
reduced to rules which are intended to be enforceable, to some extent at least, by disciplinary
action.
UNETHICAL BEHAVIOR
▪ Conduct that differs from what they believe would have been appropriate gien the
circumstances.
WHY PEOPLE ACT
UNETHICALLY?
▪ Two Primary reasons
▪ The person’s ethical standards are different from those of society as a whole.
▪ The person chooses to act selfishly
▪ Drives for unethical behavior
▪ Rationalizing Unethical Behavior
▪ If it’s legal, It’s ethical concept
▪ Likelihood of Discovery and Consequences
CHARACTERISTICS AND VALUES
ASSOCIATED WITH ETHICAL
BEHAVIOR
▪ Integrity
▪ Honesty
▪ Promise Keeping
▪ Loyalty
▪ Fairness
▪ Caring for Others
▪ Respect for Others
▪ Responsible Citizenship
▪ Pursuit of Excellence
▪ Accountability
CODE OF ETHICS
FOR PROFESSIONAL
ACCOUNTANT
Purpose of Code
▪ sets out fundamental principles of ethics for professional accountants, reflecting the
profession’s recognition of its public interest responsibility
▪ to apply in order to identify, evaluate and address threats to compliance with the
fundamental principles.
▪ In the case of audits, reviews and other assurance engagements, the Code sets out
International Independence Standards, established by the application of the conceptual
framework to threats to independence in relation to these engagements
Overview of the Code
▪ PART A – General Application of the Code
▪ PART B – Professional Accountants in Public Practice
▪ PART C – Professional Accountants in Business
PART A – General Application of
the Code
▪ Conceptual Framework Approach to Compliance
▪ Fundamental Principles
▪ Threats and Safeguards
▪ Ethical Conflict Resolution
PART B – PA in Public Practice
▪ Professional Appointment
▪ Conflicts of Interest
▪ Second Opinions
▪ Fees and other types of Remuneration
▪ Marketing Professional Services
▪ Gifts and Hospitality
▪ Custody of Client Assets
▪ Objectivity – all services
▪ Independence – Audit and Review Engagements
▪ Independence – Other Assurance Engagements
PART C – PA in Business
▪ Conflicts of Interests
▪ Preparation and Reporting of Information
▪ Acting with Sufficient Expertise
▪ Financial Instruments
▪ Inducements
If there are circumstances where laws or
regulations preclude a professional
accountant from complying with certain
parts of the Code, what shall prevail?
PART A – General
Application of the Code
General Application of the Code
▪ Professional Accountants comply with FUNDAMENTAL PRINCIPLES and Identify,
evaluate and addresses threats to compliance with fundamental Principles.
Fundamental Principles
▪ Integrity – Honesty, fairness
▪ Objectivity – Uncompromising Judgment
▪ Professional Competence and due care – Required level of knowledge, skill and diligence.
▪ Confidentiality – No arbitrary disclosure and usage of confidential information.
▪ Professional Behavior – Not discredit the reputation of the profession
Threats to Compliance with
Fundamental Principles
▪ Self-interest threat – Financial interest that compromises judgment
▪ Self-review threat – Inappropriate evaluation of previous judgment.
▪ Advocacy – Promotion of client’s or employer’s interest rather than the public interest.
▪ Familiarity – Being too sympathetic because of the close relationship with client or
employee.
▪ Intimidation – Pressures and undue influence that deter objectivity.
 Conceptual Framework Approach
to Compliance
Decline or
Apply Safeguards
Identify threats Withdraw or
to eliminate of
that are not resign from a
reduce to
acceptable level? client or an
acceptable level
employer
Fundamental
Principle
THE FUNDAMENTAL
PRINCIPLES
▪ Integrity
▪ Objectivity
▪ Professional Competence and Due Care
▪ Confidentiality
▪ Professional Behaviour
Integrity
▪ to be straightforward and honest in all professional and business relationships.
▪ fair dealing and truthfulness.
▪ Should not be associated with reports or information that
▪ Contains a materially false or misleading statements
▪ Contains information furnished recklessly
▪ Omits or obscures information that would be misleading
Objectivity
▪ to exercise professional or business judgment without being compromised by:
(i) Bias;
(ii) Conflict of interest;
(iii) Undue influence of, or undue reliance on, individuals, organizations, technology or other
factors.
Objectivity
▪ Accountant shall not perform a professional activity or service if a circumstance or
relationship biases or unduly influences the accountant’s judgment.
Professional Competence and Due
Care
(i) Attain and maintain professional knowledge and skill at the level required to ensure that a
client or employing organization receives competent professional service, based on
current technical and professional standards and relevant legislation; and
(ii) Act diligently and in accordance with applicable technical and professional standards.
Diligence encompasses the responsibility to act in accordance with the requirements of an
assignment, carefully, thoroughly and on a timely basis.
(iii) Where appropriate services aware of the limitation inherent in the services.
Two Separates Phases of
Professional Competence
(i) Attainment of professional competence.
(ii) Maintenance of professional competence.
Confidentiality
▪ to respect the confidentiality of information acquired as a result of professional and
business relationships.
▪ All professional accountants shall refrain from disclosing outside the firm or employer
confidential information acquiredas a result of professional and business relationship
without proper specific authority, legal or professional right or duty to disclose
▪ Using confidential information acquired as a result of professional and business relationship
to their personal advantage or the advantage of third parties.
▪ They need to comply with the principle even after the end of relationship between a
professional accountant and a client or employer.
Professional Behavior
(i) Comply with relevant laws and regulations;
(ii) Behave in a manner consistent with the profession’s responsibility to act in the public
interest in all professional activities and business relationships; and
(iii) Avoid any conduct that the professional accountant knows or should know might discredit
the profession.
Professional Behavior in Marketing
and Promotion
▪ Accountants should not bring the profession into disrepute.
▪ Accountants shall be honest and truthful and not:
▪ Make exaggerated claims for their services, qualifications or experience
▪ Make disparaging references or unsubstantiated comparisons to work of others.
Are there instances where might be
required to disclose confidential
information or when such disclosure
might be appropriate?
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;
Disclosure is permitted
▪ permitted by law and is authorized by the client or the employing organization
There is a professional duty or right to
disclose, when not prohibited by law:
(i) To comply with the quality review of a professional body;
(ii) To respond to an inquiry or investigation by a professional or regulatory body;
(iii) To protect the professional interests of a professional accountant in legal proceedings; or
(iv) To comply with technical and professional standards, including ethics requirements.
When the professional
relationship between the PA and
the Client end, does the PA still
required to comply with
Confidentiality?
Does the accountant entitled
to use prior experience from
past client to new clients?
DISCLOSE CONFIDENTIAL
INFORMATION,
▪ A professional accountant shall continue to comply with the principle of confidentiality even
after the end of the relationship between the accountant and a client or employing
organization.
▪ When changing employment or acquiring a new client, the accountant is entitled to use prior
experience but shall not use or disclose any confidential information acquired or received as a
result of a professional or business relationship.
IDENTIFYING THREATS
▪ The professional accountant shall identify threats to compliance with the fundamental
principles.
▪ An understanding of the facts and circumstances, including any professional activities,
interests and relationships that might compromise compliance with the fundamental principles,
is a prerequisite to the professional accountant’s identification of threats to such compliance.
▪ The existence of certain conditions, policies and procedures established by the profession,
legislation, regulation, the firm, or the employing organization that can enhance the accountant
acting ethically might also help identify threats to compliance with the fundamental principles
IDENTIFYING THREATS
▪ Threats to compliance with the fundamental principles might be created by a broad range of
facts and circumstances. It is not possible to define every situation that creates threats.
▪ In addition, the nature of engagements and work assignments might differ and, consequently,
different types of threats might be created.
THREATS
▪ A circumstance might create more than one threat, and a threat might affect compliance with
more than one fundamental principle
Self-Interest Threat
▪ the threat that a financial or other interest will inappropriately influence a professional
accountant’s judgment or behavior;
Examples of Self-Interest Threat
▪ Having a direct financial interest in the assurance client.
▪ Having undue dependence on total fees from a client.
▪ Having a significant close business relationship with an assurance client.
▪ Being concerned about the possibility of losing a significant client.
▪ Entering into employment negotiations with the audit client.
▪ Contingent fee arrangement relating to an assurance engagement
▪ Holding a financial interest in , or a loan or guarantee from the employer.
▪ Participating in incentive compensation arrangements offered by the employer.
▪ Inappropriate personal use of corporate assets.
Examples of Self-Interest Threat
▪ Concern over employment security.
▪ Commercial pressure from outside the employing organization.
Self-review threat
▪ the threat that a professional accountant will not appropriately evaluate the results of a
previous judgment made; or an activity performed by the accountant, or by another
individual within the accountant’s firm or employing organization, on which the accountant
will rely when forming a judgment as part of performing a current activity;
Example of Self-Review threat
▪ Issuing an assurance report on the effectiveness of the operation of financial systems after
designing or implementing the systems.
▪ Having prepared the original data used to generate records that are the subject matter of the
assurance engagements.
▪ A member of the assurance team being, or having recently been, a director, an officer, or an
employee in a position to exert significant influence over the subject matter of the
engagement of the client.
▪ Performing a service for an assurance client that directly affects the subject matter
information of the assurance engagement.
▪ Determining the appropriate accounting treatment for a business combination after
performing the feasibility study that supported the acquisition decision.
Advocacy Threat
▪ the threat that a professional accountant will promote a client’s or employing organization’s
position to the point that the accountant’s objectivity is compromised;
Examples of Advocacy Threat
▪ Promoting shares in an audit client
▪ Acting as an advocate on behalf of an audit client in litigation or disputes with third parties.
Familiarity Threat
▪ the threat that due to a long or close relationship with a client, or employing organization, a
professional accountant will be too sympathetic to their interests or too accepting of their
work; and
Examples of Familiarity Threat
▪ A member of the engagement team having a close or immediate family member who is a
director, an officer or an employee in a position to exert significant influence over the
subject matter of the engagement of the client.
▪ A director, officer or an employee in position to exert significant influence over the subject
matter of the engagement of the client having recently servec as an engagement partner.
▪ Accepting gifts or preferential treatment from a client, unless the value is trivial or
inconsequential.
▪ Senior personnel having a long association with the assurance client.
▪ Long Association with business contacts influencing business decisions.
▪ Being responsible for the employer’s financial reporting when an immediate or close
family member employed by the entity makes decisions that affect the entity’s financial
reporting.
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
accountant.
Examples of Intimidation Threat
▪ Being threatened with dismissal from a client engagement.
▪ An audit client indicating that it will not award a planned non-assurance contact to the firm
if the firm continues to disagree with the client.
▪ Being threatened with litigation by the client.
▪ Being pressured to reduce inappropriately the extent of work to reduce fees.
▪ An accountant feeling pressured to agree with the judgment of a client employee because
the employee has more expertise on the matter in question.
Acceptable Level
▪ An acceptable level is a level at which a professional accountant using the reasonable and
informed third party test would likely conclude that the accountant complies with the
fundamental principles.
SAFEGUARDS
▪ Safeguards are actions, individually or in combination, that the professional accountant takes
that effectively reduce threats to compliance with the fundamental principles to an acceptable
level.
SAFEGUARDS
▪ Safeguards created by the profession, legislation or regulation.
▪ Safeguards in the work environment
Examples of 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,
Acceptable Level or information produced by an accountant.
Examples of Work Environment
▪ Leadership of the firm that stresses importance of compliance with the Code.
▪ Leadership of the firm that established the expectation that members of an assurance team
will act in the public interest.
▪ Policies and Procedures to implement and monitor quality control.
▪ Advising partners and professional staff of assurance clients and related entities from which
independence is required.
▪ A disciplinary mechanism to promote compliance with policies and procedures.
▪ Having an accountant who was not a member of assurance team review the assurance work
performed or otherwise advice as necessary.
▪ Consulting an independent third party, such as a regulatory body.
Examples of Work Environment
▪ Discussing ethical issued with TCWG of the client.
▪ Disclosing to TCWG of the client the nature of services and extent of fees charged.
▪ Rotating senior assurance team personnel.
▪ Recruitment procedures of employing high caliber competent staff.
▪ Policies and procedures to encourage employees to communicate to senior levels within the
employer ethical issued without fear of retribution.
Examples of Client’s Systems and
Procedures
▪ Discussing ethical issued with TCWG of the client.
▪ Disclosing to TCWG of the client the nature of services and extent of fees charged.
▪ Rotating senior assurance team personnel.
▪ Recruitment procedures of employing high caliber competent staff.
▪ Policies and procedures to encourage employees to communicate to senior levels within the
employer ethical issued without fear of retribution.
Ethical Conflict Resolution Process
▪ Step 1: Gather relevant facts.
▪ Step 2: identify ethical issues involved.
▪ Step 3: Determine fundamental principles related to the matter in question.
▪ Step 4: Consider and follow established internal procedures within the organization, such as
consulting with ethics or personnel department.
▪ Step 5: If not resolved, formulate alternative courses of actions, such as :
▪ Consulting with TCWG, if conflict involves the organization.
▪ Obtaining outside professional and legal advice, but observe confidentiality;
▪ Disassociating from the conflict, such as withdrawing from the engagement or specific
assignment, or resigning altogether from the engagement, the firm or the employer.
PART B – Professional
Accountants in Public
Practice.
Professional Appointment
▪ Accept only a client or engagement that does not compromise compliance
▪ Client acceptance
▪ Engagement acceptance
▪ Changes in a professional appointment
Conflicts of Interest
▪ Avoid conflicting interacting that could compromise compliance.
▪ Threat to objectivity and other fundamental principles.
▪ Safeguards:
▪ Implementing mechanisms to prevent unauthorized disclosure of confidential information
▪ Having an accountant not involved in the conflict review the work to assess appropriateness
▪ Consulting with third parties.
Second Opinion
▪ Provide second opinions when compliance with the Code will not be compromised.
▪ Threat to professional competence and due care
▪ Safeguard:
▪ Seeking client permission to contact the existing accountant.
▪ Describing the limitations surrounding any opinion
▪ Providing the existing accountant with a copy of the opinion
Fees and Other Types of
Remuneration.
▪ Commissions, inadequate fees, and contingent fees may compromise compliance.
Too low engagement fees
▪ self-interest threat to professional competence and due care.
▪ Safeguards:
▪ Making the client aware of engagement terms and basis of fees
▪ Assigning appropriate time and qualified staff to the task.
Contingent Fees
▪ Fee calculated on a predetermined basis relating to the outcome of a transaction or the result
of the services.
▪ Self-interest threat to objectivity and other fundamental principles.
▪ Safeguards:
▪ Advance written agreement as to the basis of remuneration
▪ Disclosure to intended users and the basis of remuneration
▪ Quality control policies and procedures
▪ Review by an independent third party of the work.
Receiving or paying referral fee or
commission
▪ Self-interest threat to objectivity professional competence and due care.
▪ Safeguards :
▪ Disclosing to the client any arrangement about referral fees
▪ Agreeing with the client commission arrangements in connection with the sale by a third party of
goods or services to the client.
Marketing Professional Services
▪ Assertion in marketing should be honest and truthful.
Gifts and Hospitality
▪ The accountant shall decline such offers from client, unless trivial and consequential.
▪ Self-interest threat or familiarity threat to objectivity.
▪ Intimidation threat to objectivity
Custody of Client Assets
▪ Accountants generally shall not hold client assets.
▪ Example:
▪ Self-interest threat to professional behaviour
▪ Self-interest threat to objectivity
▪ Safeguards:
▪ Keep such assets separately from personal or firm assets
▪ Use such assets only for the purpose for which they are intended;
▪ At all times be ready to account for those asserts any income thereon
▪ Comply with all relevant laws and regulations
Objectivity – all services
▪ Relationships that compromise an accountant’s objectivity should be avoided.
▪ Example:
▪ Familiarity Threat to objectivity – family or close personal or business relationship
▪ Safeguards:
▪ Withdrawing from the engagement team
▪ Supervisory procedures
▪ Terminating the financial or business relationship giving rise to the threat
▪ Discussing the issue with higher levels of management within the firm
▪ Discussing the issue with TCWG of the client
Independence – audit and review
engagement
▪ An accountant who provides an assurance service shall be independent of the client.
▪ Independence in mind
▪ Independence in appearance
Independence Requirement
Application
Audit Non-audit, report Non-audit, report
is for general use is for restricted
use
Audit Client The team, the firm, The team, the firm, The team, the firm,
and the network firm and the network firm and the network firm

Non-Audit n/a The team and the The team and the
Assurance Client firm firm must have no
material financial
interest in the client
Independence – Other assurance
Engagements
▪ Requirements are similar to those for audit and review engagements.
Specific
Independence
Scenario
Engagement period
▪ Independence from audit client is required both during the engagement period and the
period covered by F/S.
▪ Recurring engagement – ends at the notification of either party that the professional
relationship has terminated or the issuance of final audit report.
Financial interest
▪ Direct – significant influence or control otherwise indirect.
▪ If a member of the audit team, a member of that individual’s immediate family (spouse or
dependent) a firm has a direct financial interest or a material indirect financial interest in the
audit client, the self-interest threat created would be so significant that no safeguards could
address the threat.
▪ If a member of the audit team has a close family member or the firm’s retirement benefit
plan has a direct financial interest or a material indirect financial interest in audit client, the
significance of the self-interest threat shall be evaluated and safeguards applied.
Loans and Guarantees
▪ From a client financial institution but not made under normal lending procedures –
Significant self-interest threat, no safeguards
▪ From a client financial institution made under normal lending procedures but is material to
audit the client or the firm – safeguards can be applied, and independence is not necessarily
compromised.
▪ From a client financial institution to a member of audit team and made under normal
lending procedures – including individual’s immediate family – no threat to independence.
▪ From and to a non-financial institution audit client – self-interest threat created would be so
significant that no safeguards could address the threat, unless immaterial to both(firm or
team member and immediate family member.
Business Relationship
▪ Between firm and the client – unless immaterial and insignificant, significant threat and no
safeguards
▪ Between a member of the audit team and the client - unless immaterial and insignificant,
removed from audit team; otherwise, independence is compromised.
▪ Between an immediate family member of a member of audit team and audit client or its
management – the significance of any threat shall be evaluated and safeguards applied.
Family and Personal Relationships
▪ Involves relationships between a member of audit team(including immediate family)
▪ Director or officer of the client
▪ Employee in a position to exert significant influence over the preparation of the client’s
accounting records or the F/S.
▪ Threat to independence can only be addressed by removing it from the audit team.
▪ For other relationships, the significance of the threat shall be evaluated and safeguards
applied, such as:
▪ Removing the individual from the audit team.
▪ Structuring the team responsibilities so that the member does not deal with matters of close
family member responsibility.
Employment with an Audit Client
▪ Involves relationships between a member of the audit team director or officer of the client,
an employee in a position to exert significant influence over the preparation of the client’s
accounting records or the F/S becomes a member of the audit team or partner of the firm,
▪ If the significant connection remains, the threat cannot be addressed by safeguards.
Temporary Staff Assignments
▪ Clients shall be responsible for directing and supervising the activities of the loaned staff.
The significance of any threat shall be evaluated and safeguards applied.
Recent services with an Audit
Client
▪ If employed during the period covered by the audit report – no safeguards could address the
threat.
▪ If before the period covered by the audit report – safeguards applied may address the threat.
Serving as a Director of an Audit
Client
▪ Threats would be so significant that no safeguards could address the threats except when
permitted under local law, professional rules or practice.
▪ Preforming routine administrative services to support secretarial administration does not
generally creates threats, as long as client management makes all decisions.
Long Association of Senior
Personnel
▪ Threats shall be evaluated and safeguards applied when necessary
▪ Rotating the senior personnel off the audit team
▪ Having a professional accountant who was not a member of the audit team review the work of
the senior personnel
▪ Regular independent quality review of the engagement .
▪ Partner Rotation
▪ For listed entities, an individual shall not be a key audit partner for more than five years. (7 years
for international version)
▪ After such time, the individual shall not be a member of the engagement team or be a key audit
partner for the client for two years (also known as “cooling off” period.)
Provisions of Non-Assurance
Services to an Audit Client
▪ The firm shall not assume a “management responsibility for an audit client”
Preparing Accounting Records and
F/S
▪ Self-review Threat
▪ Not Listed Entities – May provide as long as threat is addressed.
▪ Listed Entities – except in emergency situation, a firm shall not provide accounting and
bookkeeping services, including payroll services.
Valuation Services
▪ Not Listed Entities – If the valuation service has a material effect on F/S and the valuation
involves a significant degree of subjectivity, no safeguards could address the threat.
▪ Listed Entities – No valuation services shall be provided if the valuations would have a
material effect on F/S.
Taxation Services
▪ Tax return preparation – being subject to review by the tax authority so does not necessarily
create a threat if management takes responsibility for the returns.
▪ Tax Calculations for the purpose of preparing the accounting entries
▪ Listed – shall not prepare except emergencies
▪ Not Listed – Self-review threat but can be assessed and should address the threat,
▪ Tax Planning and other tax advisory services – may be provided, as long as with safeguards,
except where the effectiveness of tax advice depends on a particular accounting treatment in
F/S and the audit team has reasonable doubt as to the outcome of tax advice.
▪ Assistance in the resolution of tax disputes – advocacy threat or self-review threat may be
created. If material, no safeguards.
Internal Audit Services
▪ Self-review threat
▪ If the firm uses the internal audit work in external audit. The significance of the threat shall
be evaluated and safeguards applied when necessary.

▪ Listed entities shall not provide internal audit services that relate to:
▪ A significant part of internal controls over financial reporting.
▪ Amounts or disclosures that are material to F/S
IT Systems Services
▪ Self-review threat
▪ Not a public interest entity audit client – significance shall be evaluated and safeguards
applied .
▪ A public interest entity – shall not provide services involving design or implementation of
IT systems that form a significant part of internal control over financial reporting or
generate information that is significant to the client’s accounting records or F/S
Fees – Relative Size
▪ Total Fees from an audit client represent a large proportion of the total fees of the firm –
self-interest threat /intimidation threat that shall be evaluated
Fees - Overdue
▪ A self-interest threat may be created if audit fees due remain unpaid for a long time,
especially if a significant part is not paid before the issue of audit report for the following
year.
▪ The threat shall be evaluated and safeguards applied.
Contingent Fees
▪ This fee arrangement with an audit client creates a self-interest threat that is so significant
that no safeguards could be addressed.