Codes of Professional Ethics: Exam Requirements

Synopsis by Mohammad Shibbir Hossain FCA
Knowledge Level: Assurance

Session: March May 2015
Section: # G, Batch 11
Codes of Professional Ethics

Exam requirements
Ethics is 20% of the syllabus, in the assessment candidates may be required to:
 State the role of ethical codes and their importance to the profession.
 Recognize the differences between a rules based ethical code and one
based upon a set of principles.
 Identify the key features of the system of professional ethics adopted by
IFAC and ICAB.
 Identify the fundamental principals underlying the IFAC and ICAB code of
Ethics.
Learning objectives
 Be aware of the key ethical codes to which ICAB members are subject
and the sources that influence them.
 Understand the difference between principles and rules based systems.
 Understand why ethics are important to accountants.
 Know the key features of IFAC and ICAB codes.
 Know the fundamental principles of IFAC and ICAB codes.
Sources of ethical guidance

ICAB members (and trainees) and employees of member firms are subject to
the ICAB Code of Ethics. This is influenced by the guidance of IFAC (the
International Federation of Accountants, of which ICAB is a member). You
should be aware of this body as it is the same body that issues International
Standards on Auditing, which we have been studying in this Study Manual.
Rules or principles-based guidance

Principles-based framework: It contains some rules but in the main it is
flexible guidance. It can be seen as being a framework of principles rather than
a set of rules.
Factor Explanation
Active A framework of principles places the onus on the
consideration accountant to actively consider independence for every
and given situation, rather than just agreeing a checklist of
demonstration of forbidden items, It also requires him to demonstrate that a
conclusions responsible conclusion has been reached about ethical
issues.
Broad A principles-based framework prevents auditors
interpretation of interpreting legalistic requirements narrowly to get around
ethical situations ethical requirements. This is an element to which rules
engender deception whereas principles encourage
compliance.
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Individual A principles-based framework allows for the variations that

situations are found in individual situations. Each situation is likely to
covered be different.
Flexible to A principles-based framework can accommodate a rapidly
changing changing environment, such as the one that assurance
situation providers are involved in.
Can incorporate However, a principle-based framework can contain certain
prohibitions prohibitions where these are necessary.
Fundamental principles
The fundamental principles are:
 Integrity. A professional accountant should be straightforward and
honest in all professional and business relationships.
 Objectivity. A professional accountant should not allow bias, conflict of
interest or undue influence of others to override professional or business
judgments.
 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. A professional accountant should act
diligently and in accordance with applicable technical and professional
standards when providing professional services.
 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 unless there is a legal
or professional right or duty to disclose. Confidential information acquired
as a result of professional and business relationships should not be used
for the personal advantage of the professional accountant or third
parties.
 Professional behavior. A professional accountant should comply with
relevant laws and regulations and should avoid any action that discredits
the profession.
Evaluation of Independence and its results
Step 1
Identify threats to independence
Step 2
Evaluate whether the threats are insignificant
Step 3
If the threats are not insignificant, indentify and apply safeguards to
eliminate risk, or reduce it to an acceptable level.
It also recognizes that there may be occasions where no safeguard is
available. In such a situation, it is only appropriate to.
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 Eliminate the interest or activities causing the threat

 Decline the engagement, or discontinue it.
Independence:
Independence of mind: The state of mind that permits the expression
of a conclusion without being affected by influences that compromise
professional judgment, allowing an individual to act with integrity, and
exercise objectivity and professional skepticism.
Independence in appearance: The avoidance of facts and
circumstances that are so significant that a reasonable and informed
third party, having knowledge of all relevant information, including
safeguards applied, would reasonable conclude a firms, or a member of
the assurance teams integrity, objectivity or professional skepticism had
been compromised.
Threats and safeguards:

There are five general sources of threat identified the Code. Other sources
identify a sixth threat (the management threat):
 Self-interest threat (for example, having a financial in a client)
 Self-review threat (for example, auditing financial statements prepared
by the firm)
 Advocacy threat (for example, promoting the clients position by dealing
in its shares)
 Familiarity threat (for example, an audit team member having family at
the client)
 Intimidation threat (for example, threats of replacement due to
disagreement)
 Management threat (for example, doing work that should be carried out
by management, such as the design and implementation of IT systems)
There are two general categories of safeguard indentified by the

Code:
 Safeguards created by the profession, legislation or regulation
 Safeguards within the work environment
Examples of safeguards created by the profession, legislation or

regulation:
 Educational professional development requirements for entry into the
profession.
 Continuing professional development requirements.
 Corporate governance regulations
 Professional standards
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 Professional or regulatory monitoring and disciplinary procedures

 External review by a legally empowered third party of the reports,
returns, communication or information produced by a professional
accountant.
Examples of safeguards in the work environment:

 Involving an additional professional accountant to review the work done
or otherwise advise as necessary
 Consulting an independent third party, such as a committee of
independent directors, a professional regulatory body or another
professional accountant
 Rotating senior personnel
 Discussing ethical issues with those in charge of client governance
 Disclosing those charged with governance the nature of services provided
and extent of fees charged
 Involving another firm to perform or reperform part of the engagement
ICAB Code
The ICAB code is relevant to professional accountants in all of their professional
and business activities. It incorporates the IFAC Code of ethics, but also
contains additional rules deemed appropriate by the ICAB.
The IFAC code states that ‘professional accountants are expected to follow the
guidance contained in the fundamental principles in all of their professional and
business activities whether carried out with or without reward.
………………….Good Luck…………………
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Synopsis by Mohammad Shibbir Hossain FCA

Knowledge Level: Assurance

Codes of Professional Ethics

Sources of ethical guidance

Rules or principles-based guidance

Individual A principles-based framework allows for the variations that

 Eliminate the interest or activities causing the threat

Threats and safeguards:

There are two general categories of safeguard indentified by the

Examples of safeguards created by the profession, legislation or

 Professional or regulatory monitoring and disciplinary procedures

Examples of safeguards in the work environment:

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