2) Code of Ethics & Conduct

Fundemental Principles & Conceptual Framework
1. Importance of ethics
  1. The public interest - people rely on accountants and their expertise.
    1. Accountants often have access to confidential & sensitive information - NEED TO GIVE AN INDEPENDENT VIEW.
The Fundamental principles - OPTIC
1. INTEGRITY - Straightforward & Honest.
  1. OBJECTIVITY - Not allow bias or conflict of interest
    1. PROFESSIONAL COMPETENCE & DUE CARE - Keep up to date CPD!
      1. CONFIDENTIALITY - Respect confidentiality of information, appropriate authority to disclose.
        PROFESSIONAL BEHAVIOUR - To comply with relevant laws & regulations do not discredit the profession.
The Conceptual Framework
1. Framework rather than a set of rules.
  1. ADVANTAGES - Actively consider independance rather than just agreeing a checklist of forbidden items.
    1. Demonstrate that a responsible conclusion has been reached about ethical issues.
      1. Prevents auditors interpreting rules-based requirements narrowly.
        Allows for the variations that are found in every individual situation
        Can accommodate a rapidly changing environment
Threats to compliance with the fundamental principles
1. Self - Interest
2. Self-Review
3. Advocacy
4. Familiarity
5. Intimidation
6. SAFEGUARDS
  1. Firm-Wide Safeguards
    1. Leadership that stresses the importance of compliance.
      1. Policies & procedures to enable identification of interests.
        Policies & procedures manage the reliance on revenue received from a single client.
        Policies & procedures to encourage & empower staff to communicate any issue re compliance.
  2. Engagement-specific
    1. Review the work performed by an accountant not involved in the audit
      1. Consulting an independent third party
        Discussion with those charged with governance
        Rotating senior assurance team personnel
Independence
1. 1) Identify threats
  1. 2) Evaluate the significance
    1. 3) Apply Safeguards to eliminate the threat or reduce to an acceptable level
      1. Where none available, eliminate the interest or decline the engagement.
      2. CURRENT ISSUES:- EC proposals to ban non audit work for auditors of larger companies, along with mandatory rotation
        2012: FTSE 350 co in the UK to put the external audit out to tender at least every 10 years.
        A provider of ASSURANCE services must be, and be seen to be, independent.
        ISA 200 :- Maintaining professional skepticism is necessary to reduce the risks of:-
        Overlooking unusual circumstances
        Over generalising when drawing concultions from observations
        Using inappropriate assumptions in determining the nature, timing, extent of the audit and evaluating the threats.
Public Interest Entities
1. Any listed entity
2. Defined by regulation or legislation
3. Required by legislation to have an audit as independent as if it was a listed entity
4. Allows the CODE to prescribe stricter requirements for the public interest entities.
Confidentiality
1. Duty of confidence
  1. Do not disclose information without PROPER AUTHORITY
    1. Do not use information for PERSONAL ADVANTAGE
      1. Information may be disclosed if there is a RIGHT or DUTY to do so.
2. Client must agree to disclose in FULL ALL information relevant to the engagement
3. Duty continues even AFTER THE END OF THE RELATIONSHIP with the client.
4. Exceptions to the rule
  1. Permitted by law and AUTHORISED BY THE CLIENT
    1. Required by law
      1. Professional duty or right
5. Disclosure may be OBLIGATORY or VOLUNTARY
  1. OBLIGATORY
    1. Believe that a client has committed terrorist offences
    2. Believe that a client has committed treason
  2. VOLUNTARY
    1. Public Interest
      1. The police, government department for trade and industry, recognised stock exchange
        CHECKLIST
        1) Size of the amounts involved & likely financial damage
        2) Members of the public are likely to be affected
        3) Possibility or likelihood of repetition
        4) Reasons why client is unwilling to disclose to the proper authority
        5) Gravity of the matter
        6) Any legal advice obtained
    2. Protect a professional accountants's interests
      1. Defend themselves against a criminal charge or suspicion
        Resist proceedings in relation to a taxation offence
        Resist legal action by a client
        Defend themselves against disciplinary proceedings
        Enable them to sue for their fees.
    3. Authorised by statute
      1. Anti-money laundering legislation
        Whistleblowing responsibilities
Conflicts of interest
1. Between members & 'clients'
  1. Members and firms should not accept or continue engagements in which there are or are likely to be, significant conflicts of interest between members, firms and clients.
    1. Unless they are clearly insignificant, they should apply safeguards
2. Between interests of different clients
  1. Clients who are in competition, ensure that it is not the subject of a dispute between the clients.
    1. Where acceptance or continuance of an engagement would, even with safeguards, materially prejudice the interests of any client, the appointmnet should not be accepted or continued.
3. Between clients interests
  1. Relationships that ended 2 or more years earlier are unlikely to create a conflict
    1. Disclosure is the most important safeguard.

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2) Code of Ethics & Conduct

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