Details of the Code of Ethics
The Code is largely based on the 2005 version of the International Federation of Accountants (IFAC) Code with additional text in areas where it was felt that further guidance was necessary.
The additional text is included in italics to clearly illustrate where additional guidance has been added to the original IFAC text. The Code applies to all members (including students), affiliates, employees of member firms, and where applicable member firms, in all of their professional and business activities, whether remunerated or voluntary. As the Code has been derived from the IFAC Code, compliance with the Code will ensure compliance with the principles of the IFAC Code.
The Code consists of 4 Parts which are as follows:
Part A which applies to all members;
Part B which applies to members in practice;
Part C which applies to members in business and other members who are not in practice; and
Part D which applies to insolvency practitioners.
Part A
The Code is based on a conceptual framework which is supported by additional guidance which explains how the conceptual framework should be applied in practice. This approach recognises that it is not possible to define every situation that creates threats and specify the mitigating action, therefore the Code adopts a principles-based approach.
The conceptual framework provides guidance on 5 fundamental ethical principles. The fundamental principles are drawn from the duties owed by professional accountants, whether in practice or not, and from the requirements of the Royal Charter. They are framed in broad and general terms and constitute basic requirements of professional behaviour. These 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 judgements;
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; and
Professional behaviour - a professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession.
Although confidentiality is now regarded as a fundamental principle, in practice, this is unlikely to have any impact, as confidentiality has always been viewed as being a key professional value. The principle of confidentiality is not only to keep information confidential, but also to take all reasonable steps to preserve confidentiality. The Code however, recognises that accountants when considering the principle of confidentiality need to be aware of other legal reporting requirements which exist e.g. money laundering reporting obligations. Additionally, it is assumed that the former fundamental principle of courtesy is consumed within professional behaviour.
As at present, members are required to apply this conceptual framework to identify threats to compliance with the fundamental principles, to evaluate their significance and, if such threats are other than clearly insignificant to apply safeguards to eliminate them or reduce them to an acceptable level such that compliance with the fundamental principles is not compromised.
Safeguards are required to be put into place where the threats to adherence of the fundamental principles are other than clearly insignificant. There is a need to consider qualitative as well as quantitative threats. An inadvertent violation, depending on the nature and significance of the matter, may not compromise compliance with the fundamental principles provided, once the violation is discovered, the violation is corrected promptly and any necessary safeguards are applied.
The threats described in the Code are the same as those contained in the current ICAS ethical guidance. These are:
Self-interest - which may occur as a result of the financial or other interests of a professional accountant or of an immediate or close family member;
Self-review - which may occur when a previous judgement needs to be re-evaluated by the professional accountant responsible for that judgment;
Advocacy - which may occur when a professional accountant promotes a position or opinion to the point that subsequent objectivity may be compromised;
Familiarity - which may occur when, because of a close relationship, a professional accountant becomes too sympathetic to the interests of others; and
Intimidation - which may occur when a professional accountant may be deterred from acting objectively by threats, actual or perceived.
Safeguards fall into 2 categories.
those created by the profession, legislation or regulation e.g. CPD requirements and professional or regulatory monitoring and disciplinary procedures; and
those created in the work environment e.g. independent partner review.
The nature of the safeguards to be applied will vary depending on the circumstances. In exercising professional judgement, a professional accountant should consider what a reasonable and informed third party, having knowledge of all relevant information, including the significance of the threat and the safeguards applied, would conclude to be unacceptable. The need for the public interest to be paramount is emphasised in both.
Part B
This provides additional guidance for members in practice. However, it does not apply to members undertaking audit assignments in the UK and Ireland as they are governed by the Auditing Practices Board's (APB) ethical standards for auditors. Additionally, members undertaking assignments to which the APB's Standards for Investment Reporting apply, will need to ensure compliance with the APB's Ethical Standards for Reporting Accountants once these are finalised.
Part C
This section provides additional guidance for members in business. Professional accountants should note that the Code applies to all their professional and business activities, with and without reward. An appendix containing some case study examples has also been included in the Code.
It should also be noted that in circumstances where a professional accountant in business believes that the unethical behaviour or actions by others will continue to occur within the employing organisation, the professional accountant in business should consider seeking 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 disassociate from the task and/or resign from the employing organisation.
Part D
The final section provides additional guidance for insolvency practitioners.
Going forward, in order to ensure that the Code remains current it will be subject to regular review. Additionally, it is intended that the newly revised IFAC definition of a network firm will apply for assurance reports dated on or after 31 December 2008. This definition is very similar to that contained in the revised EU 8th directive on statutory audit. A network firm is a firm or entity which belongs to a network where a network is defined as: a larger structure (a) that is aimed at co-operation and (b) that is clearly aimed at profit or cost sharing or shares common ownership, control or management, common quality control policies and procedures, common business strategy, the use of a common brand-name or a significant part of professional resources.
Members with any queries regarding the Code should contact the Legal Services team at ICAS on 0131 347 0271.
Please click on the link below to download a copy of the ICAS Code of Ethics:
Note : As of 1 January 2009, Part D - which relates to Insolvency Practitioners - was revised.