The ACCA's ethical code is based on the IESBA's code.
Ethical framework involves identifying threats to fundamental principles and implementing safeguards to reduce them to an acceptable level.
The code applies to all ACCA members, students, and affiliates, covering public practice and business roles. Non-compliance can lead to disciplinary action.
Fundamental Principles (OPPIC)
O - Objectivity
P - Professional behaviour
P - Professional competence and due care
I - Integrity
C - Confidentiality
Objectivity
Avoid bias, conflicts of interest, and undue influence when making professional or business judgments.
Personal relationships or business interests should not affect objectivity.
Professional Behavior
Compliance with laws and avoiding actions that discredit the profession, like poor advertising.
Accountants should not criticise others; focus on promoting their own strengths.
Professional Competence and Due Care
Spending adequate time and using qualified personnel for audits.
Stay updated on current legislation and developments.
Decline engagements if lacking the ability to perform competently.
Integrity
Requires honesty and straightforwardness in all professional and business relationships.
Beyond honesty: standing firm on truth, asking tough questions, and following up on suspicions.
Members should not turn a blind eye to wrongdoing or try to conceal issues. Transparency is key.
Confidentiality
Maintain confidentiality of sensitive information.
Exceptions with client permission, legal duty, professional right, or public interest.
Auditors have access to price-sensitive information and must respect confidentiality.
Threats to Ethical Principles
Self-Interest Threats
Financial interest in client, employment prospects, and overdue fees.
Contingent and high-percentage fees are prohibited, as they can compromise independence.
Close business or family relationships between auditor and client personnel pose risks.
Loans or guarantees from clients to auditors need careful consideration to avoid compromising objectivity.
Self-Review Threats
Auditing one's own work or firm-prepared records.
An issue arises when the audit firm provides additional services (e.g., financial statement preparation) and then reviews the same work.
Allowed in non-listed companies with separate teams.
Examples: A team member recently served as a director/officer or is seconded to the client.
Familiarity Threats
Close personal relationships with client personnel.
Rotation of lead auditors every 5-7 years for public interest entities (PIEs) to prevent over-familiarity.
Long associations create familiarity risks, with engagement partners requiring a five-year cooling-off period after serving for seven years.
Advocacy Threats
Promoting a client’s interests can compromise objectivity.
Examples include promoting shares of a listed client or supporting a client in a dispute with tax authorities.
Intimidation Threats
Actual or perceived threats, including litigation or physical intimidation, can deter proper audit action.
Intimidation can also arise from the threat of public exposure of accepted gifts or hospitality.
Management Threats
Occur when the auditor performs managerial functions for the client, often overlapping with self-interest and familiarity threats.
Safeguards
Measures to reduce threats to an acceptable level, including assigning additional time or personnel and having independent reviewers.
Separate teams or firms for non-audit services to prevent self-review, advocacy, or familiarity threats.
Auditors may disclose referral fees or commission arrangements to manage self-interest threats.
Safeguards must be effective, and actions taken must ensure objectivity and independence are maintained.
Practical Examples and Scenarios
Gifts and hospitality: From McDonald's meals to luxury trips, maintaining both actual and perceived ethical behaviour is crucial.
Recruitment for clients: Avoid recruiting financial staff, as this may affect future evaluations of those hires.
Multiple services: Allowed with caution, particularly in large firms with separate departments, to avoid conflicts.
Low-balling: Offering an audit fee below cost to win a client raises concerns about the quality of the audit and potential conflicts of interest.
Breaches of ACCA's Code
If independence or ethical standards are breached, the firm must:
Eliminate the cause of the breach
Take immediate action to address consequences
Report the breach to ACCA where necessary
Re-evaluate the engagement's impact on independence and consider ending it if safeguards are insufficient.
Breaking Confidentiality
Client has given permission to disclose information;
There is a legal duty;
It may be in the public interest.
Conclusion
Adhering to ACCA's ethical guidelines is essential for maintaining trust and credibility in the accounting profession.
Safeguards, consultations, and ACCA resources are available to address ethical concerns and ensure compliance with professional standards.