CPE seminar paper nasir u ahmed code of ethics for professional accountants 21dec08

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Code of Ethics for Professional Accountants A Presentation By Nasir U Ahmed, FCA Member Council, ICAB 21 December 2008 WHAT ARE ETHICS ?  A sense of agreement in a society as to what is right and wrong  Ethics represent a set of moral principles, rules of conduct or values  Ethics apply when an individual has to make a decision from various alternatives regarding moral principles Objectives of Professional Accountants  work to the professionalism highest standards  attain the highest levels of performance, and  meet the public’s interest of The Code of Ethics (A, B, and C)  Part A establishes the fundamental principles of ethics for professional accountants and provides a conceptual framework for applying those principles  Parts B and C illustrate how the conceptual framework is to be applied in specific situations • Part B applies to professional accountants in public practice • Part C applies to professional accountants in business IFAC Code of Ethics - fundamental principles for all Accountants:  Integrity (Sec 110)  Objectivity (Sec 120)  Professional Competence and Due Care (Sec 130)  Confidentiality (Sec 140)  Professional Behavior (Sec 150) Continuation… Integrity The principle of integrity imposes an obligation on all professional accountants to be straightforward and honest in performing professional services It also implies fair dealing and truthfulness Objectivity: The principle of objectivity imposes on all professional accountant not to compromise their professional or business judgment because of bias, conflict of interest or undue influence of others Continuation… Professional Competence and Due Care: A professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments in practice, legislation and techniques Continuation… Confidentiality: A professional accountant should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority Professional Behavior: A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession Conceptual Framework Approach  A conceptual framework requires a professional accountant to identify, evaluate and address threats to compliance with the fundamental principles, rather than merely comply with a set of specific rules which may be arbitrary  If threats to ethics are not clearly insignificant, a professional accountant should apply safeguards to eliminate the threats or reduce them to an acceptable level Threats and Safeguards Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances Many threats fall into the following categories:      Self-interest threats Self-review threats Advocacy threats Familiarity threats Intimidation threats Continuation… What Advertising Cannot Do   A professional accountant should not bring the profession into disrepute when marketing professional services He/she should be honest and truthful and should not: Make exaggerated claims for services offered, qualifications possessed or experience gained; or Make disparaging references to unsubstantiated comparisons to the work of another Gifts and Hospitality  Self-interest threats to objectivity may be created if a gift from a client is accepted; intimidation threats to objectivity may result from the possibility of such offers being made public  Gifts or hospitality which are acceptable are those which a reasonable and informed third party, having knowledge of all relevant information, would consider clearly insignificant Custody of Client Assets  Safeguard against a self-interest threat to objectivity , a professional accountant in public practice entrusted with money (or other assets) belonging to others should:  Keep such assets separately from personal or firm assets; and  Use such assets only for the purpose for which they are intended  At all times, be ready to account for those assets, and any income, dividends or gains generated  Comply with all relevant laws and regulations relevant to the holding of and accounting for such assets Application of Framework to Specific Situations The Code of Ethics, discusses a principles-based framework for identifying, evaluating and responding to threats The framework establishes principles to identify threats to ethics principles, evaluate the significance of those threats, and, if the threats are other than clearly insignificant, identify and apply safeguards to eliminate the threats or reduce them to an acceptable level Cross-Border Activities An accountant may perform services in a country other than his home country If differences exist between ethical requirements of the two countries, the strictest provisions should be applied The IFAC Code prohibits the following nonaudit services for audit clients:      Bookkeeping Services Valuation services Management decision making functions Broker-dealer or investment advisor services Litigation support Financial involvement with a client   direct financial interest in a client; indirect material financial interest  loans to or from the client or any director or major stockholder in the client company;  financial interest in a joint venture with a client or employee(s) of a client  financial interest in non-client with investor or investee relationship with the client Professional Competence and Responsibilities Regarding the Use of Non-Accountants If a professional accountant does not have the competence to perform a specific part of the professional service, technical advice may be sought from experts such as other professional accountants, lawyers, actuaries, engineers, geologists, and evaluators However, since the auditors have ultimate responsibility for the service, it is his responsibility to see that the requirements of ethical behavior are followed Activities Incompatible with the Practice of Public Accountancy   A professional accountant in public practice should not concurrently engage in any business, occupation or activity that impairs or might impair integrity, objectivity or independence, or the good reputation of the profession The simultaneous engagement in another activity unrelated to assurance or accounting services, which reduces the accountant’s ability to conduct his accounting practice according to ethical principles, is inconsistent with public practice PROFESSIONAL ACCOUNTANTS-IN SERVICE Conflict of Loyalties    Employed professional accountants owe a duty of loyalty to their employer as well as to their profession and there may be times when the two are in conflict An employee cannot legitimately be required to break the law, breach the ethics, rules, and standards of the accounting profession, lie to their employer’s auditors, or be associated with a statement that materially misrepresents the facts If employed accountants cannot resolve any material issue involving a conflict between their employers and their professional requirements they may have no other recourse but to resign Support for Professional Colleagues and Professional Competence   Support for Professional Colleagues A professional accountant, particularly one having authority over others, should allow them to develop their own judgment in accounting matters Professional Competence An accountant employed in industry, commerce, the public sector or education may be asked to undertake significant tasks for which she has not had sufficient specific training or experience Where appropriate expert advice and assistance should be sought Presentation of Information A professional accountant is expected to present financial information fully, honestly and professionally and so that it will be understood in its context Disciplinary action and common sanctions  Disciplinary action ordinarily arises from such issues as:    failure to observe the required standard of professional care, skills or competence; non-compliance with rules of ethics and discreditable; or dishonorable conduct Sanctions commonly imposed by disciplinary bodies include:  reprimand, fine, payment of costs, withdrawal of practicing rights, suspension, and expulsion from membership [...]... existing auditor should provide information honestly and unambiguously If the proposed auditor is unable to communicate with the existing auditor, the proposed auditor should try to obtain information about any possible threats by other means such as through inquiries of third parties or background investigations on senior management The existing auditor is no longer required to provide information... or from a client or any of its directors or officers Self-Review Threat Self-Review Threat occurs occur when a previous judgment needs to be re-evaluated by the professional accountant responsible for that judgment Self-Review Threats Circumstances       The discovery of a significant error during a re-evaluation of the work of the auditor Reporting on the operation of financial systems after... principles What Advertising Cannot Do   A professional accountant should not bring the profession into disrepute when marketing professional services He/she should be honest and truthful and should not: Make exaggerated claims for services offered, qualifications possessed or experience gained; or Make disparaging references to unsubstantiated comparisons to the work of another Gifts and Hospitality  Self-interest... should:  Keep such assets separately from personal or firm assets; and  Use such assets only for the purpose for which they are intended  At all times, be ready to account for those assets, and any income, dividends or gains generated  Comply with all relevant laws and regulations relevant to the holding of and accounting for such assets Application of Framework to Specific Situations The Code of. .. 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 third party of the reports, returns, communications or information produced by a professional accountant Safeguards within the Client     When the client’s management appoints... objectivity may result from the possibility of such offers being made public  Gifts or hospitality which are acceptable are those which a reasonable and informed third party, having knowledge of all relevant information, would consider clearly insignificant Custody of Client Assets  Safeguard against a self-interest threat to objectivity , a professional accountant in public practice entrusted with money... reduce such threats to an acceptable level fall into three broad categories:    Safeguards created by the profession, legislation or regulation; Safeguards within the client; and Safeguards within the firm’s own systems and procedures Safeguards created by the profession, legislation or regulation Educational, training and experience requirements for entry into the profession Continuing professional. .. audit Conflicts of Interest A professional accountant in practice should take reasonable steps to identify circumstances that could pose a conflict of interest Such circumstances may give rise to threats to compliance with the fundamental principles Second Opinions  Providing a second opinion on the application of accounting, auditing, reporting or other standards or principles by or on behalf of. .. only those services that the accountant is competent to perform Changes in a Professional Appointment Before accepting an appointment involving services that were carried out by another, the proposed auditor should:   Request permission from the client to contact former auditor directly; Contact existing auditor before beginning audit Information from Existing Auditor    Once the client permission... cause threats to compliance with the fundamental principles  Safeguards such as seeking client permission to contact the existing auditor, describing the limitations surrounding any opinion and providing the existing auditor with a copy of the opinion may be required Fees and Other Types of Remuneration An auditor may quote whatever fee deemed to be appropriate However, a self-interest threat to professional
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