Code Of Ethics For Professional Accountants

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InternationalJune 2005Revised July 2006Ethics StandardsBoard forAccountantsCode of Ethics for ProfessionalAccountants1

International Ethics Standards Board for AccountantsInternational Federation of Accountants545 Fifth Avenue, 14th FloorNew York, New York 10017 USAThis Code of Ethics for Professional Accountants was prepared by the International EthicsStandards Board for Accountants (“IESBA”), an independent standard-setting body within theInternational Federation of Accountants (IFAC). The IESBA develops and issues in the publicinterest high-quality ethical standards and other pronouncements for professional accountants foruse around the world. It encourages member bodies to adopt high standards of ethics for theirmembers and promotes good ethical practices globally. The IESBA also fosters internationaldebate on ethical issues faced by accountants.This publication may be downloaded free-of-charge from the IFAC website: http://www.ifac.org.The approved text is published in the English language.The mission of IFAC is to serve the public interest, strengthen the worldwide accountancyprofession and contribute to the development of strong international economies by establishingand promoting adherence to high-quality professional standards, furthering the internationalconvergence of such standards and speaking out on public interest issues where the profession’sexpertise is most relevanCopyright March 2008 by the International Federation of Accountants (IFAC). All rightsreserved. Permission is granted to make copies of this work provided that such copies are for usein academic classrooms or for personal use and are not sold or disseminated and provided thateach copy bears the following credit line: “Copyright March 2008 by the InternationalFederation of Accountants (IFAC). All rights reserved. Used with permission of IFAC. Contactpermissions@ifac.org for permission to reproduce, store or transmit this document.” Otherwise,written permission from IFAC is required to reproduce, store or transmit, or to make othersimilar uses of, this document, except as permitted by law. Contact permissions@ifac.org.ISBN: 978-1-934779-52-12

June 2005Revised July 2006CODE OF ETHICS FORPROFESSIONAL ACCOUNTANTS CONTENTSPagePREFACE .5PART A: GENERAL APPLICATION OF THE CODE . 6100Introduction and Fundamental Principles .7110Integrity . 12120Objectivity . 13130Professional Competence and Due Care . 14140Confidentiality . 15150Professional Behavior . 17PART B: PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE . 18200Introduction . 19210Professional Appointment . 24220Conflicts of Interest . 27230Second Opinions . 29240Fees and Other Types of Remuneration . 30250Marketing Professional Services . 32260Gifts and Hospitality . 33270Custody of Client Assets . 34280Objectivity–All Services . 35290Independence–Assurance Engagements . 36 The Code was issued in June 2005 and became effective on June 30, 2006. Paragraphs 290.1-290.13 and290.27-290.47 are applicable to assurance engagements when the assurance report is dated on or after June 30,2006. Paragraphs 290.14-290.26, which were issued in July 2006, apply to assurance engagements when theassurance report is dated on or after December 31, 2008.3

PART C: PROFESSIONAL ACCOUNTANTS IN BUSINESS .84300Introduction .85310Potential Conflicts .89320Preparation and Reporting of Information .91330Acting with Sufficient Expertise .92340Financial Interests .93350Inducements .95DEFINITIONS .97EFFECTIVE DATE .1014

CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSPREFACEThe mission of the International Federation of Accountants (IFAC), as set out in its constitution,is “to serve the public interest, IFAC will continue to strengthen the worldwide accountancyprofession and contribute to the development of strong international economies by establishingand promoting adherence to high quality professional standards, furthering the internationalconvergence of such standards and speaking out on public interest issues where the profession’sexpertise is most relevant.” In pursuing this mission, the IFAC Board has established the EthicsStandards Board for Accountants to develop and issue, under its own authority, high qualityethical standards and other pronouncements for professional accountants for use around theworld.This Code of Ethics for Professional Accountants establishes ethical requirements forprofessional accountants. A member body of IFAC or firm may not apply less stringentstandards than those stated in this Code. However, if a member body or firm is prohibited fromcomplying with certain parts of this Code by law or regulation, they should comply with all otherparts of this Code.Some jurisdictions may have requirements and guidance that differs from this Code. Professionalaccountants should be aware of those differences and comply with the more stringentrequirements and guidance unless prohibited by law or regulation.5

PART A—GENERAL APPLICATION OF THE CODEPageSection 100 Introduction and Fundamental Principles .7Section 110 Integrity .12Section 120 Objectivity .13Section 130 Professional Competence and Due Care .14Section 140 Confidentiality .15Section 150 Professional Behavior .176

CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION 100Introduction and Fundamental Principles100.1A distinguishing mark of the accountancy profession is its acceptance of theresponsibility 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 should observe and complywith the ethical requirements of this Code.100.2This Code is in three parts. Part A establishes the fundamental principles ofprofessional ethics for professional accountants and provides a conceptual frameworkfor applying those principles. The conceptual framework provides guidance onfundamental ethical principles. Professional accountants are required to apply thisconceptual framework to identify threats to compliance with the fundamentalprinciples, to evaluate their significance and, if such threats are other than clearlyinsignificant to apply safeguards to eliminate them or reduce them to an acceptablelevel such that compliance with the fundamental principles is not compromised.100.3Parts B and C illustrate how the conceptual framework is to be applied in specificsituations. It provides examples of safeguards that may be appropriate to address threatsto compliance with the fundamental principles and also provides examples of situationswhere safeguards are not available to address the threats and consequently the activityor relationship creating the threats should be avoided. Part B applies to professionalaccountants in public practice.* Part C applies to professional accountants inbusiness.* Professional accountants in public practice may also find the guidance inPart C relevant to their particular circumstances.Fundamental Principles100.4 A professional accountant is required to comply with the following fundamentalprinciples:(a)IntegrityA professional accountant should be straightforward and honest in all professionaland business relationships.(b)ObjectivityA professional accountant should not allow bias, conflict of interest or undueinfluence of others to override professional or business judgments.(c)Professional Competence and Due CareA professional accountant has a continuing duty to maintain professionalknowledge and skill at the level required to ensure that a client or employerreceives competent professional service based on current developments inpractice, legislation and techniques. A professional accountant should actSee Definitions.7

CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSdiligently and in accordance with applicable technical and professional standardswhen providing professional services. (d)ConfidentialityA professional accountant should respect the confidentiality of informationacquired as a result of professional and business relationships and should notdisclose any such information to third parties without proper and specificauthority unless there is a legal or professional right or duty to disclose.Confidential information acquired as a result of professional and businessrelationships should not be used for the personal advantage of the professionalaccountant or third parties.(e)Professional BehaviorA professional accountant should comply with relevant laws and regulations andshould avoid any action that discredits the profession.Each of these fundamental principles is discussed in more detail in Sections 110 –150.Conceptual Framework Approach100.5The circumstances in which professional accountants operate may give rise to specificthreats to compliance with the fundamental principles. It is impossible to define everysituation that creates such threats and specify the appropriate mitigating action. Inaddition, the nature of engagements and work assignments may differ and consequentlydifferent threats may exist, requiring the application of different safeguards. Aconceptual framework that requires a professional accountant to identify, evaluate andaddress threats to compliance with the fundamental principles, rather than merelycomply with a set of specific rules which may be arbitrary, is, therefore, in the publicinterest. This Code provides a framework to assist a professional accountant to identify,evaluate and respond to threats to compliance with the fundamental principles. Ifidentified threats are other than clearly insignificant, a professional accountant should,where appropriate, apply safeguards to eliminate the threats or reduce them to anacceptable level, such that compliance with the fundamental principles is notcompromised.100.6A professional accountant has an obligation to evaluate any threats to compliance withthe fundamental principles when the professional accountant knows, or couldreasonably be expected to know, of circumstances or relationships that maycompromise compliance with the fundamental principles.100.7A professional accountant should take qualitative as well as quantitative factors intoaccount when considering the significance of a threat. If a professional accountantcannot implement appropriate safeguards, the professional accountant should decline ordiscontinue the specific professional service involved, or where necessary resign from 8See Definitions.

CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSthe client (in the case of a professional accountant in public practice) or the employingorganization (in the case of a professional accountant in business).100.8A professional accountant may inadvertently violate a provision of this Code. Such aninadvertent violation, depending on the nature and significance of the matter, may notcompromise compliance with the fundamental principles provided, once the violation isdiscovered, the violation is corrected promptly and any necessary safeguards areapplied.100.9Parts B and C of this Code include examples that are intended to illustrate how theconceptual framework is to be applied. The examples are not intended to be, nor shouldthey be interpreted as, an exhaustive list of all circumstances experienced by aprofessional accountant that may create threats to compliance with the fundamentalprinciples. Consequently, it is not sufficient for a professional accountant merely tocomply with the examples presented; rather, the framework should be applied to theparticular circumstances encountered by the professional accountant.Threats and Safeguards100.10Compliance with the fundamental principles may potentially be threatened by a broadrange of circumstances. Many threats fall into the following categories:(a)Self-interest threats, which may occur as a result of the financial or other interestsof a professional accountant or of an immediate or close family member;(b)Self-review threats, which may occur when a previous judgment needs to be reevaluated by the professional accountant responsible for that judgment;(c)Advocacy threats, which may occur when a professional accountant promotes aposition or opinion to the point that subsequent objectivity may be compromised;(d)Familiarity threats, which may occur when, because of a close relationship, aprofessional accountant becomes too sympathetic to the interests of others; and(e)Intimidation threats, which may occur when a professional accountant may bedeterred from acting objectively by threats, actual or perceived.Parts B and C of this Code, respectively, provide examples of circumstances that maycreate these categories of threats for professional accountants in public practice andprofessional accountants in business. Professional accountants in public practice mayalso find the guidance in Part C relevant to their particular circumstances.100.11 Safeguards that may eliminate or reduce such threats to an acceptable level fall into twobroad categories:(a)Safeguards created by the profession, legislation or regulation; and(b)Safeguards in the work environment.See Definitions.9

CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS100.12Safeguards created by the profession, legislation or regulation include, but are notrestricted to: 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 or information produced by a professional accountant.100.13 Parts B and C of this Code, respectively, discuss safeguards in the work environmentfor professional accountants in public practice and those in business.100.14 Certain safeguards may increase the likelihood of identifying or deterring unethicalbehavior. Such safeguards, which may be created by the accounting profession,legislation, regulation or an employing organization, include, but are not restricted to:100.15 Effective, well publicized complaints systems operated by the employingorganization, the profession or a regulator, which enable colleagues, employersand members of the public to draw attention to unprofessional or unethicalbehavior. An explicitly stated duty to report breaches of ethical requirements.The nature of the safeguards to be applied will vary depending on the circumstances. Inexercising professional judgment, a professional accountant should consider what areasonable and informed third party, having knowledge of all relevant information,including the significance of the threat and the safeguards applied, would conclude tobe unacceptable.Ethical Conflict Resolution100.16In evaluating compliance with the fundamental principles, a professional accountantmay be required to resolve a conflict in the application of fundamental principles.100.17When initiating either a formal or informal conflict resolution process, a professionalaccountant should consider the following, either individually or together with others, aspart of the resolution process:10(a)Relevant facts;(b)Ethical issues involved;(c)Fundamental principles related to the matter in question;(d)Established internal procedures; and(e)Alternative courses of action.

CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSHaving considered these issues, a professional accountant should determine theappropriate course of action that is consistent with the fundamental principlesidentified. The professional accountant should also weigh the consequences of eachpossible course of action. If the matter remains unresolved, the professional accountantshould consult with other appropriate persons within the firm* or employingorganization for help in obtaining resolution.100.18Where a matter involves a conflict with, or within, an organization, a professionalaccountant should also consider consulting with those charged with governance of theorganization, such as the board of directors or the audit committee.100.19It may be in the best interests of the professional accountant to document the substanceof the issue and details of any discussions held or decisions taken, concerning thatissue.100.20If a significant conflict cannot be resolved, a professional accountant may wish toobtain professional advice from the relevant professional body or legal advisors, andthereby obtain guidance on ethical issues without breaching confidentiality. Forexample, a professional accountant may have encountered a fraud, the reporting ofwhich could breach the professional accountant’s responsibility to respectconfidentiality. The professional accountant should consider obtaining legal advice todetermine whether there is a requirement to report.100.21If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, aprofessional accountant should, where possible, refuse to remain associated with thematter creating the conflict. The professional accountant may determine that, in thecircumstances, it is appropriate to withdraw from the engagement team or specificassignment, or to resign altogether from the engagement, the firm or the employingorganization. See Definitions.11

CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION 110Integrity110.1The principle of integrity imposes an obligation on all professional accountants to bestraightforward and honest in professional and business relationships. Integrity alsoimplies fair dealing and truthfulness.110.2A professional accountant should not be associated with reports, returns,communications or other information where they believe that the information:110.312(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 orobscurity would be misleading.A professional accountant will not be considered to be in breach of paragraph 110.2 ifthe professional accountant provides a modified report in respect of a matter containedin paragraph 110.2.

CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION 120Objectivity120.1The principle of objectivity imposes an obligation on all professional accountants not tocompromise their professional or business judgment because of bias, conflict of interestor the undue influence of others.120.2A professional accountant may be exposed to situations that may impair objectivity. Itis impracticable to define and prescribe all such situations. Relationships that bias orunduly influence the professional judgment of the professional accountant should beavoided.13

CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION 130Professional Competence and Due Care130.1130.2The principle of professional competence and due care imposes the followingobligations on professional accountants:(a)To maintain professional knowledge and skill at the level required to ensure thatclients or employers receive competent professional service; and(b)To act diligently in accordance with applicable technical and professionalstandards when providing professional services.Competent professional service requires the exercise of sound judgment in applyingprofessional knowledge and skill in the performance of such service. Professionalcompetence may be divided into two separate phases:(a)Attainment of professional competence; and(b)Maintenance of professional competence.130.3The maintenance of professional competence requires a continuing awareness and anunderstanding of relevant technical professional and business developments.Continuing professional development develops and maintains the capabilities thatenable a professional accountant to perform competently within the professionalenvironments.130.4Diligence encompasses the responsibility to act in accordance with the requirements ofan assignment, carefully, thoroughly and on a timely basis.130.5A professional accountant should take steps to ensure that those working under theprofessional accountant’s authority in a professional capacity have appropriate trainingand supervision.130.6Where appropriate, a professional accountant should make clients, employers or otherusers of the professional services aware of limitations inherent in the services to avoidthe misinterpretation of an expression of opinion as an assertion of fact.14

CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION 140Confidentiality140.1The principle of confidentiality imposes an obligation on professional accountants torefrain from:(a)Disclosing outside the firm or employing organization confidential informationacquired as a result of professional and business relationships without proper andspecific authority or unless there is a legal or professional right or duty todisclose; and(b)Using confidential information acquired as a result of professional and businessrelationships to their personal advantage or the advantage of third parties.140.2A professional accountant should maintain confidentiality even in a social environment.The professional accountant should be alert to the possibility of inadvertent disclosure,particularly in circumstances involving long association with a business associate or aclose or immediate family member.140.3A professional accountant should also maintain confidentiality of information disclosedby a prospective client or employer.140.4A professional accountant should also consider the need to maintain confidentiality ofinformation within the firm or employing organization.140.5A professional accountant should take all reasonable steps to ensure that staff under theprofessional accountant’s control and persons from whom advice and assistance isobtained respect the professional accountant’s duty of confidentiality.140.6The need to comply with the principle of confidentiality continues even after the end ofrelationships between a professional accountant and a client or employer. When aprofessional accountant changes employment or acquires a new client, the professionalaccountant is entitled to use prior experience. The professional accountant should not,however, use or disclose any confidential information either acquired or received as aresult of a professional or business relationship.140.7The following are circumstances where professional accountants are or may be requiredto 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:(c) (i)Production of documents or other provision of evidence in the course oflegal proceedings; or(ii)Disclosure to the appropriate public authorities of infringements of the lawthat come to light; andThere is a professional duty or right to disclose, when not prohibited by law:See Definitions.15

CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS(i)To comply with the quality review of a member body or professional body;(ii)To respond to an inquiry or investigation by a member body or regulatorybody;(iii) To protect the professional interests of a professional accountant in legalproceedings; or(iv) To comply with technical standards and ethics requirements.140.816In deciding whether to disclose confidential information, professional accountantsshould consider the following points:(a)Whether the interests of all parties, including third parties whose interests may beaffected, could be harmed if the client or employer consents to the disclosure ofinformation by the professional accountant;(b)Whether all the relevant information is known and substantiated, to the extent it ispracticable; when the situation involves unsubstantiated facts, incompleteinformation or unsubstantiated conclusions, professional judgment should be usedin determining the type of disclosure to be made, if any; and(c)The type of communication that is expected and to whom it is addressed; inparticular, professional accountants should be satisfied that the parties to whomthe communication is addressed are appropriate recipients.

CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION 150Professional Behavior150.1The principle of professional behavior imposes an obligation on professionalaccountants to comply with relevant laws and regulations and avoid any action thatmay bring discredit to the profession. This includes actions which a reasonable andinformed third party, having knowledge of all relevant information, would concludenegatively affects the good reputation of the profession.150.2In marketing and promoting themselves and their work, professional accountantsshould not bring the profession into disrepute. Professional accountants should behonest and truthful and should not:(a)Make exaggerated claims for the services they are able to offer, the qualificationsthey possess, or experience they have gained; or(b)Make disparaging references or unsubstantiated comparisons to the work ofothers.17

PART B—PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICEPageSection 200 Introduction . 19Section 210 Professional Appointment . 24Section 220 Conflicts of Interest . 27Section 230 Second Opinions . 29Section 240 Fees and Other Types of Remuneration . 30Section 250 Marketing Professional Services . 32Section 260 Gifts and Hospitality . 33Section 270 Custody of Client Assets . 34Section 280 Objectivity—All Services . 35Section 290 Independence—Assurance Engagements . 3618

CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION 200Introduction200.1This Part of the Code illustrates how the conceptual framework contained in Part A isto be applied by professional accountants in public practice. The examples in thefollowing sections are not intended to be, nor should they be interpreted as, anexhaustive list of all circumstances experienced by a professional accountant in publicpractice that may create threats to compliance with the principles. Consequently, it isnot sufficient for a professional accountant in public practice

290.27-290.47 are applicable to assurance engagements when the assurance report is dated on or after June 30, 2006. Paragraphs 290.14-290.26, which were issued in July 2006, apply to assurance engagements when the assuranc

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