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PART A—GENERAL APPLICATION OF THE IESBA CODE
Page
Section 100 Introduction and Fundamental Principles ......................................... 13
Section 110 Integrity ............................................................................................. 19
Section 120 Objectivity ......................................................................................... 20
Section 130 Professional Competence and Due Care ........................................... 21
Section 140 Confidentiality .................................................................................. 22
Section 150 Professional Behavior ....................................................................... 24
PART A
SECTION 100
Introduction and Fundamental Principles
100.1 A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. Therefore, a professional accountant’s responsibility is not exclusively to satisfy the needs of an individual client or employer. In acting in the public interest, a professional accountant shall observe and comply with this Code. If a professional accountant is prohibited from complying with certain parts of this Code by law or regulation, the professional accountant shall comply with all other parts of this Code.
100.2 This Code contains three parts. Part A establishes the fundamental principles of professional ethics for professional accountants and provides a conceptual framework that professional accountants shall apply to: (a) Identify threats to compliance with the fundamental principles; (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. Safeguards are necessary when the professional accountant determines that the threats are not at a level at which a reasonable and informed third party would be likely to conclude, weighing all the specific facts and circumstances available to the professional accountant at that time, that compliance with the fundamental principles is not compromised. A professional accountant shall use professional judgment in applying this conceptual framework.
100.3 Parts B and C describe how the conceptual framework applies in certain situations. They provide examples of safeguards that may be appropriate to address threats to compliance with the fundamental principles. They also describe situations where safeguards are not available to address the threats, and consequently, the circumstance or relationship creating the threats shall be avoided. Part B applies to professional accountants in public practice. Part C applies to professional accountants in business. Professional accountants in public practice may also find Part C relevant to their particular circumstances.
100.4 The use of the word “shall” in this Code imposes a requirement on the professional accountant or firm to comply with the specific provision in which “shall” has been used. Compliance is required unless an exception is permitted by this Code.
PART A
100.7 When a professional accountant identifies threats to compliance with the fundamental principles and, based on an evaluation of those threats, determines that they are not at an acceptable level, 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. In making that determination, 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.
100.8 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.
100.9 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 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).
100.10 A professional accountant may inadvertently violate a provision of this Code. Depending on the nature and significance of the matter, such an inadvertent violation may be deemed not to compromise compliance with the fundamental principles provided, once the violation is discovered, the violation is corrected promptly and any necessary safeguards are applied.
100.11 When a professional accountant encounters unusual circumstances in which the application of a specific requirement of the Code would result in a disproportionate outcome or an outcome that may not be in the public interest, it is recommended that the professional accountant consult with a member body or the relevant regulator.
Threats and Safeguards
100.12 Threats may be created by a broad range of relationships and circumstances. When a relationship or circumstance creates a threat, such a threat could compromise, or could be perceived to compromise, a professional accountant’s compliance with the fundamental principles. A circumstance
or relationship may create more than one threat, and a threat may affect compliance with more than one fundamental principle. Threats fall into one or more of the following categories: (a) Self-interest threat – the threat that a financial or other interest will inappropriately influence the professional accountant’s 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 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 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) 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 (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. Parts B and C of this Code explain how these categories of threats may be created for professional accountants in public practice and professional accountants in business, respectively. Professional accountants in public practice may also find Part C relevant to their particular circumstances.
100.13 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.
100.14 Safeguards created by the profession, legislation or regulation include:
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.
100.21 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. Instances in which the professional accountant may consider obtaining legal advice vary. For example, a professional accountant may have encountered a fraud, the reporting of which could breach the professional accountant’s responsibility to respect confidentiality. The professional accountant may consider obtaining legal advice in that instance to determine whether there is a requirement to report.
100.22 If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, a professional accountant shall, where possible, 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.
PART A
SECTION 110
Integrity
110.1 The principle of integrity imposes an obligation on all professional accountants to be straightforward and honest in all professional and business relationships. Integrity also implies 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.
110.3 A professional accountant will be deemed not to be in breach of paragraph 110.2 if the professional accountant provides a modified report in respect of a matter contained in paragraph 110.2.
PART A
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 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.
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.
130.6 Where appropriate, a professional accountant shall make clients, employers or other users of the accountant’s professional services aware of the limitations inherent in the services.
SECTION 140
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.
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.
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
SECTION 150
Professional Behavior
150.1 The principle of professional behavior imposes an obligation on all professional accountants to comply with relevant laws and regulations and avoid any action that the professional accountant knows or should know may discredit the profession. This includes actions 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.
150.2 In marketing and promoting themselves and their work, professional accountants shall not bring the profession into disrepute. Professional accountants shall be honest and truthful and 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.
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PART B
PART B—PROFESSIONAL ACCOUNTANTS IN PUBLIC
PRACTICE
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Section 200 Introduction .................................................................................... 26
Section 210 Professional Appointment .............................................................. 31
Section 220 Conflicts of Interest ........................................................................ 35
Section 230 Second Opinions ............................................................................ 37
Section 240 Fees and Other Types of Remuneration ......................................... 38
Section 250 Marketing Professional Services .................................................... 40
Section 260 Gifts and Hospitality ...................................................................... 41
Section 270 Custody of Client Assets ................................................................ 42
Section 280 Objectivity―All Services .............................................................. 43
Section 290 Independence―Audit and Review Engagements .......................... 44
Section 291 Independence―Other Assurance Engagements ............................ 100
Interpretation 2005–1 ......................................................................................... 128
PART B
A member of the audit team entering into employment negotiations with the audit client. A firm entering into a contingent fee arrangement relating to an assurance engagement. 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.
200.5 Examples of circumstances that create self-review threats for a professional accountant in public practice include: A firm issuing an assurance report on the effectiveness of the operation of financial systems after designing or implementing the systems. A firm having prepared the original data used to generate records that are the subject matter of the assurance engagement. A member of the assurance team being, or having recently been, a director or officer of the client. 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. The firm performing a service for an assurance client that directly affects the subject matter information of the assurance engagement.
200.6 Examples of circumstances that create advocacy threats for a professional accountant in public practice include: The firm promoting shares in an audit client. A professional accountant acting as an advocate on behalf of an audit client in litigation or disputes with third parties.
200.7 Examples of circumstances that create familiarity threats for a professional accountant in public practice include: A member of the engagement team having a close or immediate family member who is a director or officer of the client. 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. 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. A professional accountant 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.
200.8 Examples of circumstances that create intimidation threats for a professional accountant in public practice include: A firm being threatened with dismissal from a client engagement. 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. A firm being threatened with litigation by the client. A firm being pressured to reduce inappropriately the extent of work performed in order to reduce fees. 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. 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.
200.9 Safeguards that may eliminate or reduce threats to an acceptable level fall into two broad categories: (a) Safeguards created by the profession, legislation or regulation; and (b) Safeguards in the work environment. Examples of safeguards created by the profession, legislation or regulation are described in paragraph 100.14 of Part A of this Code.
200.10 A professional accountant in public practice shall exercise judgment to determine how best to deal with threats that are not at an acceptable level, whether by applying safeguards to eliminate the threat or reduce it to an acceptable level or by terminating or declining the relevant engagement. In exercising this judgment, a professional accountant in public practice shall consider whether 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 that the threats would be eliminated or reduced to an acceptable level by the application of safeguards, such that compliance with the fundamental principles is not compromised. This consideration will be affected by matters such as the significance of the threat, the nature of the engagement and the structure of the firm.
200.11 In the work environment, the relevant safeguards will vary depending on the circumstances. Work environment safeguards comprise firm-wide safeguards and engagement-specific safeguards.
200.13 Examples of engagement-specific safeguards in the work environment include: Having a professional accountant who was not involved with the non-assurance service review the non-assurance work performed or otherwise advise as necessary. Having a professional accountant who was not a member of the assurance team review the assurance work performed or otherwise advise as necessary. Consulting an independent third party, such as a committee of independent directors, a professional regulatory body or another professional accountant. Discussing ethical issues with those charged with governance of the client or a subgroup thereof. Disclosing to those charged with governance of the client, or a subgroup thereof, the nature of services provided and extent of fees charged. Involving another firm to perform or re-perform part of the engagement. Rotating senior assurance team personnel.
200.14 Depending on the nature of the engagement, a professional accountant in public practice may also be able to rely on safeguards that the client has implemented. However it is not possible to rely solely on such safeguards to reduce threats to an acceptable level.
200.15 Examples of safeguards within the client’s systems and procedures include:
The client requires persons other than management to ratify or approve the appointment of a firm to perform an engagement. The client has competent employees with experience and seniority to make managerial decisions. The client has implemented internal procedures that ensure objective choices in commissioning non-assurance engagements. The client has a corporate governance structure that provides appropriate oversight and communications regarding the firm’s services.
PART B
SECTION 210
Professional Appointment
Client Acceptance
210.1 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. Potential threats to integrity or professional behavior may be created from, for example, questionable issues associated with the client (its owners, management or activities).
210.2 Client issues that, if known, could threaten compliance with the fundamental principles include, for example, client involvement in illegal activities (such as money laundering), dishonesty or questionable financial reporting practices.
210.3 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: Obtaining knowledge and understanding of the client, its owners, managers and those responsible for its governance and business activities; or Securing the client’s commitment to improve corporate governance practices or internal controls.
210.4 Where it is not possible to reduce the threats to an acceptable level, the professional accountant in public practice shall decline to enter into the client relationship.
210.5 It is recommended that a professional accountant in public practice periodically review acceptance decisions for recurring client engagements.
Engagement Acceptance
210.6 The fundamental principle of professional competence and due care imposes an obligation on a professional accountant in public practice to provide only those services that the professional accountant in public practice is competent to perform. Before accepting a specific client engagement, a professional accountant in public practice shall determine 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.
210.7 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. Examples of such safeguards include:
