Professional Ethics Code of Professional conduct for accountants continued Fundamental principles Integrity – straightforward and honest in professional dealings Objectivity –independence Confidentiality- refrain from disclosing confidential information, Professional Competence and due care – maintain professional knowledge and skills Professional behaviour- comply with relevant laws and regulations. Honest and truthful in marketing and promoting themselves Identifying the threats to compliance with the fundamental principles The majority of threats fall into the following categories: Self Interest threats- generally as a result of the financial or other interests of a professional accountant or of an immediate or close family member Self review threats – re-evaluation of a previous judgement Advocacy threats- promotion of a position or opinion to the point that subsequent objectivity may be compromised Familiarity threats – as a result of a close relationship one may become to sympathetic to the interest of others Intimidation threats-objectivity affected by actual or perceived threats Self interest threats Examples of self interest threats for accountants in public practice A financial interest in a client Jointly holding a financial interest with a client Undue dependence of fees from a client Close relationship with client Concerns about losing a client Potential employment with a client Contingent fees relating to an assurance engagement Examples of self interest threats for accountants in business Financial interests, loans or guarantees Incentive compensation arrangements Inappropriate personal use of corporate assets Concern over employment security Commercial pressure for outside the employing organisation Self review threats Examples of self review threats for accountants in public practice Discovery of significant error during a re-evaluation of the work of a member in public practice Reporting on the operation of financial systems after being involved in their design or implementation A member of the assurance team, being or recently been a director or officer of the client Examples of self review threats for accountants in business Business decisions or data being subject to review and justification by the same member in business that was responsible for making the decision or preparing the data Advocacy threats Examplesof advocacy threats for accountants in public practice Promoting shares in a listed entity when that entity is a financial statement audit client Examplesof advocacy threats for accountants in business Promotion of the organisations position should not present a threat provided the statements are not false nor misleading Familiarity threats Examples of familiarity threats for accountants in public practice A member if the engagement team have a close or immediate family relationship with a director or officer of the client A member of the engagement team having a close or immediate family relationship with an employee of the client who is I a position to exert direct & significant influence over the subject matter of the engagement Accepting gifts or preferential treatment from a client, unless value is clearly insignificant Examples of familiarity threats for accountants in business member in business in a position to influence financial or non financial reporting issues because of their relationship with someone in a position to benefit from that influence Long association with business contacts influencing business decision Accepting gifts or preferential treatment unless value is clearly insignificant Intimidation threats Examplesof intimidation threats for accountants in public practice Threats of dismissal or replacement in relation to a client engagement Threats of litigation Pressure to reduce inappropriately the extent of work performed in order to reduce fees Examplesof intimidation threats for accountants in business Threats of dismissal or replacement over disagreement about application of an accounting principle or standard Implementation of safeguards to reduce threat 1. Safeguards created by the profession, legislation or regulation; Education, training and experience requirements for entry into the profession Continuing professional development requirements Corporate governance regulations Professional standards Professional or regulatory monitoring and diciplinary procedures External review by a legally empowered 3rd party of the reports, returns, communications or information produced by a professional accountant 2. Safeguards in the workplace Effective well publicised compliants systems which enables collegues, employers and members of the public to draw attention to unprofessional or unethical behavior Explicitly stated duty to report breaches of ethical requirements Case Study 1 Arthur Anderson 1. Describe the culture of Arthur Andserson & how it may have contributed to its downfall? 2. How does the provision of non auditing services to an audit client compromise the auditors independence? 3. Why is it important for accounting firms to maintain their independence in fact and appearance? 4. How did Arthur Anderson violate the public interest principle?