Accountants and Ethics PDF

BM2001 ACCOUNTANTS AND ETHICS Approaches of Accountancy Ethics Accountants are one of the key personnel of the business. They have access to financial information of individuals and businesses as a whole. This power might pose ethical dilemmas in the conduct...

BM2001 ACCOUNTANTS AND ETHICS Approaches of Accountancy Ethics Accountants are one of the key personnel of the business. They have access to financial information of individuals and businesses as a whole. This power might pose ethical dilemmas in the conduct of their job, such as abuse of information or manipulation of numbers for personal gain, or enhance the earning performance of the company. That is why accounting ethics is important. To solve possible ethical dillemas, the idea of independence was introduced. These are: Independence in fact - It is the ability to maintain an unbiased attitude towards the course of work. Independence in appearance - These are the perceptions of other persons such as users of financial statements that the auditor is free from any act or attitude that would hinder their independence. Code of Ethics for Accountants The International Ethics Standards Board for Accountants (IESBA) is an independent standard-setting body that develops an internationally appropriate Code of Ethics for Professional Accountants (the Code). The objective of the IESBA is to serve the public interest by setting high-quality ethics standards for professional accountants. The IESBA’s long-term objective is the convergence of the Code's ethical standards for professional accountants, including auditor independence standards, with those issued by regulators and national standard setters. Convergence to a single set of standards can enhance the quality and consistency of services provided by professional accountants throughout the world, and that can improve the efficiency of global capital markets. The Code of Ethics is divided into three (3) parts. Part A: General Application establishes the fundamental principles of professional ethics for professional accountants and provides a conceptual framework that professional accountants shall apply. Parts B: Professional Accountants in Public Practice and C: Professional Accountants in Business describe how the conceptual framework applies in certain situations. Part A: General Application (Section 100) Fundamental Principles A professional accountant shall comply with the following fundamental principles: Integrity – to be straightforward and honest in all professional and business relationships. Objectivity – to not allow bias, conflict of interest or undue influence of others to override professional or business judgments. Professional competence and due care – to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional services based on current developments in practice, legislation, and techniques and act diligently following applicable technical and professional standards. Confidentiality – to respect the confidentiality of information acquired as a result of professional and business relationships and, therefore, not disclose any such information to third parties without proper and specific authority, unless there is a legal or professional right or duty to disclose, nor use the information for the personal advantage of the professional accountant or third parties. Professional behavior – to comply with relevant laws and regulations and avoid any action that discredits the profession. 07 Handout 1 *Property of STI  [email protected] Page 1 of 4  BM2001 Conceptual Framework Approach The conceptual framework approach assists professional accountants in complying with the ethical requirements of the IESBA Code of Ethics and meeting their responsibility to act in the public interest. It accommodates many variations in circumstances that create threats to compliance with the fundamental principles and can deter a professional accountant from concluding that a situation is permitted if it is not specifically prohibited. Part B: Professional Accountants in Public Practice (Section 200) A professional accountant in public practice shall not knowingly engage in any business, occupation, or activity that impairs or might impair integrity, objectivity, or the good reputation of the profession and, as a result, would be incompatible with the fundamental principles. Threats and Safeguards Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances and relationships. The nature and significance of the threats may differ depending on whether they arise concerning the provision of services to an audit client and whether the audit client is a public interest entity, to an assurance client that is not an audit client, or to a non assurance client. Threats fall into one (1) or more of the following categories: Self-interest threat – The threat that a financial or other interest will inappropriately influence the professional accountant’s judgment or behavior. For example, a member of the assurance team having a direct financial interest in the assurance client. 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 for or employing organization, on which the accountant will rely when forming a judgment as part of providing current service. For example, a member of the assurance team being, or having recently been, a director or officer of the client. Advocacy threat – The threat that a professional accountant will promote the client’s or employer’s position to the point that the professional accountant’s objectivity is compromised. For example, a professional accountant 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 employer, a professional accountant will be too sympathetic to their interests or too accepting of their work. For example, 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. 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. For example, 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. 07 Handout 1 *Property of STI  [email protected] Page 2 of 4  BM2001 Safeguards are actions or other measures that may eliminate threats or reduce them to an acceptable level. They fall into two (2) broad categories: a. Safeguards created by the profession, legislation, or regulation – These 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. External review by a legally empowered third part of the reports, returns, communications, or information produced by a professional accountant. b. Safeguards in the work environment – These include: Leadership of the firm that stresses the importance of compliance with fundamental principles. Leadership of the firm that establishes the expectation that members of an assurance team will act in the public interest. Policies and procedures to implement and monitor quality control of engagements. Documented policies regarding the need to identify threats to compliance with the fundamental principles, evaluate the significance of those threats, and apply safeguards to eliminate or reduce the threats to an acceptable level, or when appropriate safeguards are not available or cannot be applied, terminated or declined; Documented internal policies and procedures requiring compliance with the fundamental principles. Policies and procedures that will enable the identification of interests or relationships between the firm or members of engagement teams and clients. Policies and procedures to monitor and, if necessary, manage the reliance on revenue received from a single client. Using different partners and engagement teams with separate reporting lines for the provision of non-assurance services to an assurance client. Policies and procedures to prohibit individuals who are not members of an engagement team from inappropriately influencing the outcome of the engagement. Timely communication of a firm’s policies and procedures, including any changes to them, to all partners and professional staff, and appropriate training and education on such policies and procedures. Designating a member of senior management to be responsible for overseeing the adequate functioning of the firm’s quality control system. 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. Published policies and procedures to encourage and empower staff to communicate to senior levels within the firm any issue relating to compliance with the fundamental principles that concern them. Part C: Professional Accountants in Business (Section 300) Professional accountants in business may be solely or jointly responsible for the preparation and reporting of financial and other information, which both their employing organizations and third parties may rely on. They may also be responsible for providing effective financial management and competent advice on a variety of business-related matters. 07 Handout 1 *Property of STI  [email protected] Page 3 of 4  BM2001 Just like those who are working in public practice compliance with the fundamental principles may potentially be threatened by a broad range of circumstances and relationships in business. The threats involve for professional accountants in business are the same with public practice; these are outlined as follows: Self-interest threat For example, holding a financial interest in, or receiving a loan or guarantee from the employing organization client. Self review threat For example, determining the appropriate accounting treatment for a business combination after performing the feasibility study that supported the acquisition decision. Advocacy threat For example, falsely promoting the organization’s position when furthering the legitimate goals and objectives of their employing organizations. Familiarity threat For example, being responsible for the employing organization’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 For example, a dominant personality attempting to influence the decision making process, for example with regard to the awarding of contracts or the application of an accounting principle. The same safeguards would also be applied to eliminate the threats or reduce them to an acceptable level. In circumstances where a professional accountant in the business believes that unethical behavior or actions by others will continue to occur within the employing organization, the professional accountant in business may consider obtaining legal advice. In those extreme situations where all available safeguards have been exhausted, and it is not possible to reduce the threat to an acceptable level, a professional accountant in business may conclude that it is appropriate to resign from the employing organization. Reference International Ethics Standards Board of Accountants. (2013). Code of ethics for professional accountants. Retrieved June 28, 2019, from Philippine Institute of Certified Public Accountants: http://picpa.com.ph/attachment/21720171215650.pdf 07 Handout 1 *Property of STI  [email protected] Page 4 of 4