- 1. International Federation of Accountants545 Fifth Avenue,
14th FloorNew York, New York 10017 USAThis publication was prepared
by the International Federation of Accountants (IFAC).Its mission
is to serve the public interest, strengthen the worldwide
accountancyprofession and contribute to the development of strong
international economies byestablishing and promoting adherence to
high-quality professional standards, furtheringthe international
convergence of such standards and speaking out on public
interestissues where the professions expertise is most
relevant.This publication may be downloaded free-of-charge from the
IFAC websitehttp://www.ifac.org. The approved text is published in
the English language.IFAC welcomes any comments you may have
regarding this handbook. Comments maybe sent to the address above
or emailed to [email protected] January 2007 by the
International Federation of Accountants (IFAC). Allrights reserved.
Permission is granted to make copies of this work provided that
suchcopies are for use in academic classrooms or for personal use
and are not sold ordisseminated and provided further that each copy
bears the following credit line:Copyright January 2007 by the
International Federation of Accountants. All rightsreserved. Used
by permission. Otherwise, written permission from IFAC is required
toreproduce, store or transmit this document, except as permitted
by law. [email protected]: 1-931949-66-2
2. HANDBOOK OF INTERNATIONALAUDITING, ASSURANCE, AND
ETHICSPRONOUNCEMENTS2007 EDITIONScope of the HandbookThis handbook
brings together for continuing reference background information on
theInternational Federation of Accountants (IFAC) and the currently
effectivepronouncements on auditing, assurance, and ethics issued
by IFAC as of January 1,2007. In this handbook, the text of
pronouncements that become effective at a date afterJanuary 1, 2007
has been shaded.How this Handbook is ArrangedThe contents of the
handbook are arranged by section as follows:Changes of Substance
from the 2006 Edition of the Handbookand Recent Developments
......................................................................
1Background Information on the International Federation of
Accountants ..... 5Ethics
.............................................................................................................
11Auditing, Review, Other Assurance, and Related Services
........................... 129 3. 1 CHANGESCHANGESCHANGES OF
SUBSTANCE FROM THE 2006 EDITION OFTHE HANDBOOK AND RECENT
DEVELOPMENTSReferencesThis handbook contains references to the
International Auditing Practices Committee(IAPC) of the
International Federation of Accountants (IFAC). As of April 1, 2002
theInternational Auditing and Assurance Standards Board (IAASB) of
IFAC replaced theIAPC.This handbook also contains references to the
International Accounting StandardsCommittee (IASC). As of April 1,
2002 the International Financial Reporting Standards(IFRSs)
(previously referred to as International Accounting Standards
(IASs)) are issuedby the International Accounting Standards Board
(IASB). Unless otherwise indicated,references to IASs and IFRSs are
to the IASs and IFRSs in effect at the date ofpreparing a
pronouncement. Accordingly, readers are cautioned that, where a
revisedIAS or IFRS has been issued subsequently, reference should
be made to the most recentIAS or IFRS.Pronouncements Issued by the
International Auditing andAssurance Standards BoardAdditionsThe
following additions have been made in this edition of the handbook:
The Glossary of Terms has been updated. ISA 700, The Independent
Auditors Report on a Complete Set of GeneralPurpose Financial
Statements became effective for auditors reports dated on orafter
December 31, 2006. ISA 700 gave rise to conforming amendments1 to
ISA200, Objective and General Principles Governing an Audit of
FinancialStatements, ISA 210, Terms of Audit Engagements, ISA 570,
Going Concern,ISA 701, Modifications to the Independent Auditors
Report and ISA 800, TheIndependent Auditors Report on Special
Purpose Audit Engagements. Except forthe final sentence of
paragraph 3 and paragraphs 37-48 of the amended ISA 200and the
whole of the amended ISA 210, these conforming amendments are
noweffective and have been incorporated in the text of the
Standards. Implementationof the final sentence of paragraph 3 and
paragraphs 37-48 of the amended ISA 200and the amended ISA 210 has
been deferred until such time as ISA 800 (Revised),Special
ConsiderationsAudits of Special Purpose Financial Statements
andSpecific Elements, Accounts or Items of a Financial Statement
becomes effective(a date yet to be determined).1 Conforming
amendment means an amendment to an existing Standard arising from
the revision of another Standard or the development of a new
Standard. 4. CHANGES OF SUBSTANCE AND RECENT
DEVELOPMENTSWithdrawals ISA 230, Documentation was withdrawn in
June 2006 when the revised ISA 230Audit Documentation became
effective. ISA 700, The Auditors Report on Financial Statements was
withdrawn inDecember 2006 when the revised ISA 700, The Independent
Auditors Report ona Complete Set of General Purpose Financial
Statements became effective.Small Entity Audit ConsiderationsFor
ISAs issued subsequent to March 2003, whenever necessary, small
entity auditconsiderations are included in the body of those ISAs.
Guidance contained in IAPS1005, The Special Considerations in the
Audit of Small Entities is withdrawn whenrevisions to related ISAs
become effective. Accordingly, readers are cautioned that,
inaddition to the guidance in IAPS 1005, reference should be made
to the small entityaudit considerations included in ISAs issued
subsequent to March 2003.Clarity ProjectAmendments to the Preface
to the International Standards on Quality Control, Auditing,Review,
Other Assurance and Related Services (Preface) were approved in
December2006 as part of the IAASBs project to improve the clarity
of its standards. The Prefaceestablishes the conventions to be used
by the IAASB in drafting future InternationalStandards on Auditing,
and the obligations of auditors who follow those Standards.The
IAASB has also approved the application of those conventions to the
followingfour, re-titled ISAs: ISA 240 (Redrafted), The Auditors
Responsibilities Relating to Fraud in an Auditof Financial
Statements; ISA 300 (Redrafted), Planning an Audit of Financial
Statements; ISA 315 (Redrafted), Identifying and Assessing the
Risks of MaterialMisstatement Through Understanding the Entity and
Its Environment; and ISA 330 (Redrafted), The Auditors Responses to
Assessed Risks.The IAASB intends to apply the conventions to all of
the ISAs, and to make allredrafted ISAs effective from a single
date. Provisionally, this is expected to be foraudits of financial
statements for periods beginning on or after December 15, 2008.2The
IAASB is making the approved redrafted ISAs available as early as
possible toassist in their translation, adoption and
implementation. The amended Preface andrecently redrafted ISAs are
included at the end of the Audit, Review, Other Assurance,and
Related Services section of this handbook.2 The final effective
date will be confirmed as the IAASB progresses its agenda to issue
a complete set ofredrafted ISAs. The effective date will, however,
not be earlier than this provisional date.CHANGES 2 5. CHANGES OF
SUBSTANCE AND RECENT DEVELOPMENTS3 CHANGESCHANGESThe redrafted ISAs
are described as redrafted. If further revision has been
undertaken,a standard is described as revised and
redrafted.Exposure DraftsIn 2006, the IAASB has issued exposure
drafts on the following: ISA 230 (Redrafted), Audit Documentation
ISA 260 (Revised and Redrafted), Communication with Those Charged
withGovernance ISA 320 (Revised and Redrafted), Materiality in
Planning and Performing anAudit ISA 450 (Redrafted), Evaluation of
Misstatements Identified during the Audit ISA 540 (Revised and
Redrafted), Auditing Accounting Estimates, Including FairValue
Accounting Estimates, and Related Disclosures3 ISA 550 (Revised and
Redrafted), Related Parties ISA 560 (Redrafted), Subsequent Events
ISA 580 (Revised and Redrafted), Written Representations ISA 600
(Revised and Redrafted), The Audit of Group Financial Statements
ISA 610 (Redrafted), The Auditors Consideration of the Internal
Audit Function ISA 720 (Redrafted), The Auditors Responsibility in
Relation to OtherInformation in Documents Containing Audited
Financial StatementsFor additional information on recent
developments and to obtain final pronouncementsissued subsequent to
December 31, 2006 or outstanding exposure drafts visit theIAASBs
website at http://www.iaasb.org.Pronouncements Issued by the
International Ethics StandardsBoard for AccountantsAdditionsDuring
2006 the International Ethics Standards Board for Accountants
(IESBA) issued arevision to the definition of network firm. This
revised definition is effective forassurance reports dated on or
after December 31, 2008.3 The proposed ISA 540 (Revised and
Redrafted) is a combination of ISA 540 (Revised),
AuditingAccounting Estimates and Related Disclosures (Other Than
Those Involving Fair Value Measurementsand Disclosures) and ISA
545, Auditing Fair Value Measurements and Disclosures. 6. CHANGES
OF SUBSTANCE AND RECENT DEVELOPMENTSRecent Exposure DraftsThe IESBA
has issued an exposure draft of proposed revised Section
290IndependenceAudit and Review Engagements and proposed new
Section 291IndependenceOther Assurance Engagements.For additional
information on recent developments and to obtain final
pronouncementsissued subsequent to December 31, 2006 or outstanding
exposure drafts visit theIESBAs page on the IFAC website at
http://www.ifac.org.CHANGES 4 7. 5 IFACIFACBACKGROUND INFORMATION
ON THEINTERNATIONAL FEDERATION OF ACCOUNTANTSThe OrganizationThe
International Federation of Accountants (IFAC) is the worldwide
organization forthe accountancy profession. Founded in 1977, its
mission is to serve the public interest,IFAC will continue to
strengthen the worldwide accountancy profession and contributeto
the development of strong international economies by establishing
and promotingadherence to high-quality professional standards,
furthering the internationalconvergence of such standards and
speaking out on public interest issues where theprofessions
expertise is most relevant.IFACs governing bodies, staff and
volunteers are committed to the values of integrity,transparency
and expertise. IFAC also seeks to reinforce professional
accountantsadherence to these values, which are reflected in the
IFAC Code of Ethics forProfessional Accountants.Primary
ActivitiesServing the Public InterestIFAC provides leadership to
the worldwide accountancy profession in serving the publicinterest
by: Developing, promoting and maintaining global professional
standards and a Codeof Ethics for Professional Accountants of a
consistently high-quality; Actively encouraging convergence of
professional standards, particularly, auditing,assurance, ethics,
education, and public and private sector financial
reportingstandards; Seeking continuous improvements in the quality
of auditing and financialmanagement; Promoting the values of the
accountancy profession to ensure that it continuallyattracts high
caliber entrants; Promoting compliance with membership obligations;
and Assisting developing and emerging economies, in cooperation
with regionalaccounting bodies and others, in establishing and
maintaining a professioncommitted to quality performance and in
serving the public interest.Contributing to the Efficiency of the
Global EconomyIFAC contributes to the efficient functioning of the
international economy by: Improving confidence in the quality and
reliability of financial reporting; Encouraging the provision of
high-quality performance information (financial andnon-financial)
within organizations; 8. BACKGROUND INFORMATION ON THEINTERNATIONAL
FEDERATION OF ACCOUNTANTS Promoting the provision of high-quality
services by all members of the worldwideaccountancy profession; and
Promoting the importance of adherence to the Code of Ethics for
ProfessionalAccountants by all members of the accountancy
profession, including members inindustry, commerce, the public
sector, the not-for-profit sector, academia, andpublic
practice.Providing Leadership and SpokesmanshipIFAC is the primary
spokesperson for the international profession and speaks out on
awide range of public policy issues, especially those where the
professions expertise ismost relevant, as well as on regulatory
issues related to auditing and financial reporting.This is
accomplished, in part, through outreach to numerous organizations
that rely onor have an interest in the activities of the
international accountancy profession.MembershipIFAC is comprised of
155 members and associates in 118 countries worldwide,representing
more than 2.5 million accountants in public practice, industry
andcommerce, the public sector, and education. No other accountancy
body in the worldand few other professional organizations have the
broad-based international support thatcharacterizes IFAC.IFACs
strengths derive not only from its international representation,
but also from thesupport and involvement of its individual member
bodies, which are themselvesdedicated to promoting integrity,
transparency, and expertise in the accountancyprofession, as well
as from the support of regional accountancy bodies.Standard-Setting
InitiativesIFAC has long recognized the need for a globally
harmonized framework to meet theincreasingly international demands
that are placed on the accountancy profession,whether from the
business, public sector or education communities. Major
componentsof this framework are the Code of Ethics for Professional
Accountants, InternationalStandards on Auditing (ISAs),
International Education Standards, and InternationalPublic Sector
Accounting Standards (IPSASs).IFACs standard-setting boards,
described below, follow a due process that supports thedevelopment
of high-quality standards in the public interest in a transparent,
efficient,and effective manner. These standard-setting boards all
have Consultative AdvisoryGroups, which provide public interest
perspectives, and include public members.IFACs Public Interest
Activity Committees (PIACs) the International Auditing andAssurance
Standards Board, International Accounting Education Standards
Board,International Ethics Standards Board for Accountants and the
Compliance AdvisoryPanel are subject to oversight by the Public
Interest Oversight Board (PIOB) (seebelow).IFAC 6 9. BACKGROUND
INFORMATION ON THEINTERNATIONAL FEDERATION OF ACCOUNTANTS7
IFACIFACThe terms of reference, due process and operating
procedures of the IFAC standard-settingboards are available from
the IFAC website at http://www.ifac.org.IFAC actively supports
convergence to ISAs and other standards developed by
IFACsindependent standard-setting boards and the International
Accounting Standards Board.Auditing and Assurance ServicesThe
International Auditing and Assurance Standards Board (IAASB)
develops ISAs andInternational Standards on Review Engagements,
which deal with the audit and reviewof historical financial
statements; and International Standards on AssuranceEngagements,
which deal with assurance engagements other than the audit or
review ofhistorical financial information. The IAASB also develops
related practice statements.These standards and statements serve as
the benchmark for high-quality auditing andassurance standards and
statements worldwide. They establish standards and provideguidance
for auditors and other professional accountants, giving them the
tools to copewith the increased and changing demands for reports on
financial information, andprovide guidance in specialized areas.In
addition, the IAASB develops quality control standards for firms
and engagementteams in the practice areas of audit, assurance and
related services.EthicsThe Code of Ethics for Professional
Accountants, developed by IFACs InternationalEthics Standards Board
for Accountants (IESBA), establishes ethical requirements
forprofessional accountants and provides a conceptual framework for
all professionalaccountants to ensure compliance with the five
fundamental principles of professionalethics. These principles are
integrity, objectivity, professional competence and due
care,confidentiality, and professional behavior. Under the
framework, all professionalaccountants are required to identify
threats to these fundamental principles and, if thereare threats,
apply safeguards to ensure that the principles are not compromised.
Amember body of IFAC or firm conducting an audit using ISAs may not
apply lessstringent standards than those stated in the Code.Public
Sector AccountingIFACs International Public Sector Accounting
Standards Board (IPSASB) focuses onthe development of high-quality
financial reporting standards for use by public sectorentities
around the world. It has developed a comprehensive body of IPSASs
setting outthe requirements for financial reporting by governments
and other public sectororganizations. The IPSASs represent
international best practice in financial reporting bypublic sector
entities. In many jurisdictions, the application of the
requirements ofIPSASs will enhance the accountability and
transparency of the financial reportsprepared by governments and
their agencies.The IPSASs are contained in the 2007 edition of
IFACs Handbook of InternationalPublic Sector Accounting
Pronouncements and are also available from the IFAC 10. BACKGROUND
INFORMATION ON THEINTERNATIONAL FEDERATION OF ACCOUNTANTSwebsite at
http://www.ifac.org. French and Spanish translations of the IPSASs
are alsoavailable for download from the IFAC
website.EducationWorking to advance accounting education programs
worldwide, IFACs InternationalAccounting Education Standards Board
(IAESB) develops International EducationStandards, setting the
benchmarks for the education of members of the
accountancyprofession. All member bodies are required to comply
with those standards, whichaddress the education process leading to
qualification as a professional accountant aswell as the ongoing
continuing professional development of members of the
profession.The IAESB also develops International Education Practice
Statements and otherguidance to assist member bodies and accounting
educators implement and achieve bestpractice in accounting
education.This handbook does not contain the International
Education Standards, which areavailable from the IFAC website at
http://www.ifac.org.Support for Professional Accountants in
BusinessBoth IFAC and its member bodies face the challenge of
meeting the needs of anincreasing number of accountants employed in
business and industry, the public sector,education, and the
not-for-profit sector. These accountants now comprise more than
50percent of the membership of member bodies. IFACs Professional
Accountants inBusiness (PAIB) Committee develops guidance to assist
member bodies in addressing awide range of professional issues,
encourages and supports high-quality performance byprofessional
accountants in business, and strives to build public awareness
andunderstanding of the work they provide.Small- and Medium-Sized
PracticesIFAC is also focused on providing support for another
growing constituency: small- andmedium-sized practices (SMPs).
IFACs SMP Committee develops guidance on keytopics for SMPs and
small- and medium-sized entities (SMEs), includingimplementation
guidance. It provides input from an SMP/SME perspective on
thedevelopment of international standards and on the work of the
IFAC standard-settingboards and is focused on developing
implementation guidance for ISAs and theInternational Standard on
Quality Control 1. The SMP Committee also investigatesways in which
IFAC, together with its member bodies, can respond to the needs
ofaccountants operating in small and medium enterprises and
practices and holds annualforums on SMP/SME issues.Developing
NationsIFACs Developing Nations Committee supports the development
of the accountancyprofession in all regions of the world by
representing and addressing the interests ofdeveloping nations and
by providing guidance to strengthen the accountancy
professionworldwide. The committee also seeks resources and
development assistance from theIFAC 8 11. BACKGROUND INFORMATION ON
THEINTERNATIONAL FEDERATION OF ACCOUNTANTS9 IFACIFACdonor community
on their behalf. In addition, the committee holds annual forums
onaddressing the needs of developing nations.IFAC Member Body
Compliance ProgramAs part of the Member Body Compliance Program,
IFAC members and associates(mostly national professional
institutes) are required to demonstrate how they have usedbest
endeavors, subject to national laws and regulations, to implement
the standardsissued by IFAC and the International Accounting
Standards Board. The program, whichis overseen by IFACs Compliance
Advisory Panel, also seeks to determine howmembers and associates
have met their obligations with respect to quality assurance
andinvestigation and disciplinary programs for their members as set
out in IFACsStatements of Membership Obligations (SMOs). The SMOs
serve as the foundation ofthe Compliance Program and provide clear
benchmarks to current and potential memberbodies to assist them in
ensuring high-quality performance by professional accountants.This
handbook does not contain the SMOs, which are available from the
IFAC websiteat http://www.ifac.org.Regulatory FrameworkIn November
2003, IFAC, with the strong support of member bodies and
internationalregulators, approved a series of reforms to increase
confidence that the activities ofIFAC are properly responsive to
the public interest and will lead to the establishment
ofhigh-quality standards and practices in auditing and
assurance.The reforms provide for the following: more transparent
standard-setting processes,greater public and regulatory input into
those processes, regulatory monitoring, publicinterest oversight,
and ongoing dialogue between regulators and the
accountancyprofession. This is accomplished through the following
structures:Public Interest Oversight Board (PIOB)Established in
February 2005, the PIOBoversees IFACs standard-setting activities
in the areas of auditing and assurance, ethics including
independence and education, as well as the IFAC Member
BodyCompliance Program. The PIOB is comprised of ten
representatives nominated byinternational regulators and
institutions.Monitoring Group (MG)The MG comprises international
regulators and relatedorganizations. Its role is to update the PIOB
regarding significant events in theregulatory environment. It is
also the vehicle for dialogue between regulators and
theinternational accountancy profession.IFAC Regulatory Liaison
Group (IRLG)The IRLG includes the IFAC President,Deputy President,
Chief Executive, three members designated by the IFAC Board,
theChair of the Forum of Firms, and six members designed by the
firms. It works with theMG and addresses issues related to the
regulation of the profession. 12. BACKGROUND INFORMATION ON
THEINTERNATIONAL FEDERATION OF ACCOUNTANTSIFAC Structure and
OperationsGovernance of IFAC rests with its Board and Council. The
IFAC Council comprisesone representative from each member. The
Board is a smaller group responsible forpolicy setting. As
representatives of the worldwide accountancy profession,
Boardmembers take an oath of office to act with integrity and in
the public interest.The IFAC Nominating Committee makes
recommendations on the composition of IFACboards and committees,
the IFAC Board, and candidates for the office of IFAC
DeputyPresident. The committee is guided in its work by the
principle of choosing the bestperson for the position. It also
seeks to balance regional and professional representationon the
boards and committees as well as representation from countries with
differentlevels of economic development.IFAC is headquartered in
New York City and is staffed by accounting and otherprofessionals
from around the world.IFAC Website, Copyright and TranslationIFAC
makes its guidance widely available by enabling individuals to
freely downloadall publications from its website
(http://www.ifac.org) and by encouraging its membersand associates,
regional accountancy bodies, standard setters, regulators and
others toinclude links from their own websites, or print materials,
to the publications on IFACswebsite. The IFAC Policy Statement,
Permissions Policy for Publications Issued by theInternational
Federation of Accountants, outlines its policy with regard to
copyright.IFAC recognizes that it is important that preparers and
users of financial statements,auditors, regulators, lawyers,
academia, students, and other interested groups in non-English
speaking countries have access to its standards in their native
language. TheIFAC Policy Statement, Translation of Standards and
Guidance Issued by theInternational Federation of Accountants,
outlines its policy with regard to translation ofits standards.This
handbook does not contain these policy statements. However, they
are availablefrom the IFAC website at http://www.ifac.org. The
website also features additionalinformation about IFACs structure
and activities.IFAC 10 13. 11 ETHICSETHICS TABLE OF
CONTENTSETHICSCONTENTSPageCode of Ethics for Professional
Accountants (Issued June 2005,effective June 30,
2006)...........................................................................
12Revision of Section 290, IndependenceAssurance Engagements(Issued
July 2006, effective December 31,
2008).................................... 124For additional
information on the International Ethics Standards Board for
Accountants(IESBA), recent developments, and to obtain outstanding
exposure drafts, visit theIESBAs page on the IFAC website at
http://www.ifac.org. 14. ETHICS 12June 2005CODE OF ETHICS
FORPROFESSIONAL ACCOUNTANTS(Effective June 30,
2006)CONTENTSPagePREFACE
......................................................................................................
14PART A: GENERAL APPLICATION OF THE CODE
............................... 15100 Introduction and Fundamental
Principles ........................................ 16110 Integrity
...........................................................................................
22120 Objectivity
.......................................................................................
23130 Professional Competence and Due Care
.......................................... 24140 Confidentiality
.................................................................................
25150 Professional Behavior
......................................................................
27PART B: PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE ... 28200
Introduction
.....................................................................................
29210 Professional Appointment
...............................................................
35220 Conflicts of Interest
.........................................................................
39230 Second Opinions
..............................................................................
41240 Fees and Other Types of Remuneration
.......................................... 42250 Marketing
Professional Services
..................................................... 45260 Gifts
and Hospitality
........................................................................
46270 Custody of Client Assets
.................................................................
47280 ObjectivityAll Services
..................................................................
48290 IndependenceAssurance Engagements
.......................................... 49PART C: PROFESSIONAL
ACCOUNTANTS IN BUSINESS ................... 102300 Introduction
.....................................................................................
103310 Potential Conflicts
...........................................................................
107320 Preparation and Reporting of Information
....................................... 109330 Acting with
Sufficient Expertise
...................................................... 111 15. CODE
OF ETHICS FOR PROFESSIONAL ACCOUNTANTS13 ETHICSETHICS340 Financial
Interests
............................................................................
113350 Inducements
.....................................................................................
115DEFINITIONS
..............................................................................................
117EFFECTIVE DATE
.......................................................................................
123 16. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSPREFACEThe
mission of the International Federation of Accountants (IFAC), as
set out in itsconstitution, is the worldwide development and
enhancement of an accountancyprofession with harmonized standards,
able to provide services of consistently highquality in the public
interest. In pursuing this mission, the IFAC Board hasestablished
the Ethics Standards Board for Accountants to develop and issue,
underits own authority, high quality ethical standards and other
pronouncements forprofessional accountants for use around the
world.This Code of Ethics for Professional Accountants establishes
ethical requirementsfor professional accountants. A member body of
IFAC or firm may not apply lessstringent standards than those
stated in this Code. However, if a member body orfirm is prohibited
from complying with certain parts of this Code by law orregulation,
they should comply with all other parts of this Code.Some
jurisdictions may have requirements and guidance that differs from
this Code.Professional accountants should be aware of those
differences and comply with themore stringent requirements and
guidance unless prohibited by law or regulation.ETHICS 14 17. CODE
OF ETHICS FOR PROFESSIONAL ACCOUNTANTS15 ETHICSETHICSPART AGENERAL
APPLICATION OF THE CODEPageSection 100 Introduction and Fundamental
Principles ...................................... 16Section 110
Integrity
..........................................................................................
22Section 120 Objectivity
.....................................................................................
23Section 130 Professional Competence and Due Care
........................................ 24Section 140
Confidentiality
...............................................................................
25Section 150 Professional Behavior
....................................................................
27 18. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION
100Introduction and Fundamental Principles100.1 A distinguishing
mark of the accountancy profession is its acceptance ofthe
responsibility to act in the public interest. Therefore, a
professionalaccountants* responsibility is not exclusively to
satisfy the needs of anindividual client or employer. In acting in
the public interest aprofessional accountant should observe and
comply with the ethicalrequirements of this Code.100.2 This Code is
in three parts. Part A establishes the fundamental principlesof
professional ethics for professional accountants and provides
aconceptual framework for applying those principles. The
conceptualframework provides guidance on fundamental ethical
principles.Professional accountants are required to apply this
conceptual frameworkto identify threats to compliance with the
fundamental principles, toevaluate their significance and, if such
threats are other than clearlyinsignificant to apply safeguards to
eliminate them or reduce them to anacceptable level such that
compliance with the fundamental principles isnot compromised.100.3
Parts B and C illustrate how the conceptual framework is to be
applied inspecific situations. It provides examples of safeguards
that may beappropriate to address threats to compliance with the
fundamentalprinciples and also provides examples of situations
where safeguards arenot available to address the threats and
consequently the activity orrelationship creating the threats
should be avoided. Part B applies toprofessional accountants in
public practice.* Part C applies toprofessional accountants in
business.* Professional accountants inpublic practice may also find
the guidance in Part C relevant to theirparticular
circumstances.Fundamental Principles100.4 A professional accountant
is required to comply with the followingfundamental principles:(a)
IntegrityA professional accountant should be straightforward and
honest inall professional and business relationships.(b) + See
Definitions.ETHICS 16 19. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTS17 ETHICSETHICSObjectivityA professional accountant
should not allow bias, conflict ofinterest or undue influence of
others to override professional orbusiness judgments.(c)
Professional Competence and Due CareA professional accountant has a
continuing duty to maintainprofessional knowledge and skill at the
level required to ensurethat a client or employer receives
competent professional servicebased on current developments in
practice, legislation andtechniques. A professional accountant
should act diligently and inaccordance with applicable technical
and professional standardswhen providing professional services.(d)
ConfidentialityA professional accountant should respect the
confidentiality ofinformation acquired as a result of professional
and businessrelationships and should not disclose any such
information to thirdparties without proper and specific authority
unless there is a legalor professional right or duty to disclose.
Confidential informationacquired as a result of professional and
business relationshipsshould not be used for the personal advantage
of the professionalaccountant or third parties.(e) Professional
BehaviorA professional accountant should comply with relevant laws
andregulations and should avoid any action that discredits
theprofession.Each of these fundamental principles is discussed in
more detail inSections 110 150.Conceptual Framework Approach100.5
The circumstances in which professional accountants operate may
giverise to specific threats to compliance with the fundamental
principles. It isimpossible to define every situation that creates
such threats and specifythe appropriate mitigating action. In
addition, the nature of engagementsand work assignments may differ
and consequently different threats mayexist, requiring the
application of different safeguards. A conceptualframework that
requires a professional accountant to identify, evaluateand address
threats to compliance with the fundamental principles, ratherthan
merely comply with a set of specific rules which may be arbitrary,
See Definitions. 20. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSis,
therefore, in the public interest. This Code provides a framework
toassist a professional accountant to identify, evaluate and
respond tothreats to compliance with the fundamental principles. If
identified threatsare other than clearly insignificant, a
professional accountant should,where appropriate, apply safeguards
to eliminate the threats or reducethem to an acceptable level, such
that compliance with the fundamentalprinciples is not
compromised.100.6 A professional accountant has an obligation to
evaluate any threats tocompliance with the fundamental principles
when the professionalaccountant knows, or could reasonably be
expected to know, ofcircumstances or relationships that may
compromise compliance with thefundamental principles.100.7 A
professional accountant should take qualitative as well as
quantitativefactors into account when considering the significance
of a threat. If aprofessional accountant cannot implement
appropriate safeguards, theprofessional accountant should decline
or discontinue the specificprofessional service involved, or where
necessary resign from the client(in the case of a professional
accountant in public practice) or theemploying organization (in the
case of a professional accountant inbusiness).100.8 A professional
accountant may inadvertently violate a provision of thisCode. Such
an inadvertent violation, depending on the nature andsignificance
of the matter, may not compromise compliance with thefundamental
principles provided, once the violation is discovered, theviolation
is corrected promptly and any necessary safeguards are
applied.100.9 Parts B and C of this Code include examples that are
intended to illustratehow the conceptual framework is to be
applied. The examples are notintended to be, nor should they be
interpreted as, an exhaustive list of allcircumstances experienced
by a professional accountant that may createthreats to compliance
with the fundamental principles. Consequently, it isnot sufficient
for a professional accountant merely to comply with theexamples
presented; rather, the framework should be applied to theparticular
circumstances encountered by the professional accountant.Threats
and Safeguards100.10 Compliance with the fundamental principles may
potentially bethreatened by a broad range of circumstances. Many
threats fall into thefollowing categories:ETHICS 18 21. CODE OF
ETHICS FOR PROFESSIONAL ACCOUNTANTS19 ETHICSETHICS(a) Self-interest
threats, which may occur as a result of the financial orother
interests of a professional accountant or of an immediate orclose
family member;(b) Self-review threats, which may occur when a
previous judgmentneeds to be re-evaluated by the professional
accountant responsiblefor that judgment;(c) Advocacy threats, which
may occur when a professionalaccountant promotes a position or
opinion to the point thatsubsequent objectivity may be
compromised;(d) Familiarity threats, which may occur when, because
of a closerelationship, a professional accountant becomes too
sympathetic tothe interests of others; and(e) Intimidation threats,
which may occur when a professionalaccountant may be deterred from
acting objectively by threats,actual or perceived.Parts B and C of
this Code, respectively, provide examples ofcircumstances that may
create these categories of threats for professionalaccountants in
public practice and professional accountants in
business.Professional accountants in public practice may also find
the guidance inPart C relevant to their particular
circumstances.100.11 Safeguards that may eliminate or reduce such
threats to an acceptablelevel fall into two broad categories:(a)
Safeguards created by the profession, legislation or regulation;
and(b) Safeguards in the work environment.100.12 Safeguards created
by the profession, legislation or regulation include,but are not
restricted to: Educational, training and experience requirements
for entry intothe profession. Continuing professional development
requirements. Corporate governance regulations. Professional
standards. Professional or regulatory monitoring and disciplinary
procedures. See Definitions. 22. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTS External review by a legally empowered third party of
the reports,returns, communications or information produced by a
professionalaccountant.100.13 Parts B and C of this Code,
respectively, discuss safeguards in the workenvironment for
professional accountants in public practice and those
inbusiness.100.14 Certain safeguards may increase the likelihood of
identifying or deterringunethical behavior. Such safeguards, which
may be created by theaccounting profession, legislation, regulation
or an employingorganization, include, but are not restricted to:
Effective, well publicized complaints systems operated by
theemploying organization, the profession or a regulator,
whichenable colleagues, employers and members of the public to
drawattention to unprofessional or unethical behavior. An
explicitly stated duty to report breaches of ethical
requirements.100.15 The nature of the safeguards to be applied will
vary depending on thecircumstances. In exercising professional
judgment, a professionalaccountant should consider what a
reasonable and informed third party,having knowledge of all
relevant information, including the significanceof the threat and
the safeguards applied, would conclude to beunacceptable.Ethical
Conflict Resolution100.16 In evaluating compliance with the
fundamental principles, a professionalaccountant may be required to
resolve a conflict in the application offundamental
principles.100.17 When initiating either a formal or informal
conflict resolution process, aprofessional accountant should
consider the following, either individuallyor together with others,
as part of the resolution process:(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.Having considered these issues, a professional
accountant shoulddetermine the appropriate course of action that is
consistent with thefundamental principles identified. The
professional accountant shouldalso weigh the consequences of each
possible course of action. If thematter remains unresolved, the
professional accountant should consultETHICS 20 23. CODE OF ETHICS
FOR PROFESSIONAL ACCOUNTANTS21 ETHICSETHICSwith other appropriate
persons within the firm* or employingorganization for help in
obtaining resolution.100.18 Where a matter involves a conflict
with, or within, an organization, aprofessional accountant should
also consider consulting with thosecharged with governance of the
organization, such as the board ofdirectors or the audit
committee.100.19 It may be in the best interests of the
professional accountant to documentthe substance of the issue and
details of any discussions held or decisionstaken, concerning that
issue.100.20 If a significant conflict cannot be resolved, a
professional accountant maywish to obtain professional advice from
the relevant professional body orlegal advisors, and thereby obtain
guidance on ethical issues withoutbreaching confidentiality. For
example, a professional accountant mayhave encountered a fraud, the
reporting of which could breach theprofessional accountants
responsibility to respect confidentiality. Theprofessional
accountant should consider obtaining legal advice todetermine
whether there is a requirement to report.100.21 If, after
exhausting all relevant possibilities, the ethical conflict
remainsunresolved, a professional accountant should, where
possible, refuse toremain associated with the matter creating the
conflict. The professionalaccountant may determine that, in the
circumstances, it is appropriate towithdraw from the engagement
team or specific assignment, or toresign altogether from the
engagement, the firm or the employingorganization. See Definitions.
24. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION
110Integrity110.1 The principle of integrity imposes an obligation
on all professionalaccountants to be straightforward and honest in
professional and businessrelationships. Integrity also implies fair
dealing and truthfulness.110.2 A professional accountant should not
be associated with reports, returns,communications or other
information where they believe that theinformation:(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 suchomission or obscurity
would be misleading.110.3 A professional accountant will not be
considered to be in breach ofparagraph 110.2 if the professional
accountant provides a modified reportin respect of a matter
contained in paragraph 110.2.ETHICS 22 25. CODE OF ETHICS FOR
PROFESSIONAL ACCOUNTANTS23 ETHICSETHICSSECTION 120Objectivity120.1
The principle of objectivity imposes an obligation on all
professionalaccountants not to compromise their professional or
business judgmentbecause of bias, conflict of interest or the undue
influence of others.120.2 A professional accountant may be exposed
to situations that may impairobjectivity. It is impracticable to
define and prescribe all such situations.Relationships that bias or
unduly influence the professional judgment ofthe professional
accountant should be avoided. 26. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTSSECTION 130Professional Competence and Due Care130.1 The
principle of professional competence and due care imposes
thefollowing obligations on professional accountants:(a) To
maintain professional knowledge and skill at the level requiredto
ensure that clients or employers receive competent
professionalservice; and(b) To act diligently in accordance with
applicable technical andprofessional standards when providing
professional services.130.2 Competent professional service requires
the exercise of sound judgmentin applying professional knowledge
and skill in the performance of suchservice. Professional
competence may be divided into two separatephases:(a) Attainment of
professional competence; and(b) Maintenance of professional
competence.130.3 The maintenance of professional competence
requires a continuingawareness and an understanding of relevant
technical professional andbusiness developments. Continuing
professional development developsand maintains the capabilities
that enable a professional accountant toperform competently within
the professional environments.130.4 Diligence encompasses the
responsibility to act in accordance with therequirements of an
assignment, carefully, thoroughly and on a timelybasis.130.5 A
professional accountant should take steps to ensure that those
workingunder the professional accountants authority in a
professional capacityhave appropriate training and
supervision.130.6 Where appropriate, a professional accountant
should make clients,employers or other users of the professional
services aware of limitationsinherent in the services to avoid the
misinterpretation of an expression ofopinion as an assertion of
fact.ETHICS 24 27. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS25
ETHICSETHICSSECTION 140Confidentiality140.1 The principle of
confidentiality imposes an obligation on professionalaccountants to
refrain from:(a) Disclosing outside the firm or employing
organization confidentialinformation acquired as a result of
professional and businessrelationships without proper and specific
authority or unless thereis a legal or professional right or duty
to disclose; and(b) Using confidential information acquired as a
result of professionaland business relationships to their personal
advantage or theadvantage of third parties.140.2 A professional
accountant should maintain confidentiality even in a
socialenvironment. The professional accountant should be alert to
thepossibility of inadvertent disclosure, particularly in
circumstancesinvolving long association with a business associate
or a close orimmediate family member.140.3 A professional
accountant should also maintain confidentiality ofinformation
disclosed by a prospective client or employer.140.4 A professional
accountant should also consider the need to maintainconfidentiality
of information within the firm or employing organization.140.5 A
professional accountant should take all reasonable steps to ensure
thatstaff under the professional accountants control and persons
from whomadvice and assistance is obtained respect the professional
accountantsduty of confidentiality.140.6 The need to comply with
the principle of confidentiality continues evenafter the end of
relationships between a professional accountant and aclient or
employer. When a professional accountant changes employmentor
acquires a new client, the professional accountant is entitled to
useprior experience. The professional accountant should not,
however, use ordisclose any confidential information either
acquired or received as aresult of a professional or business
relationship.140.7 The following are circumstances where
professional accountants are ormay be required to disclose
confidential information or when suchdisclosure may be
appropriate:(a) Disclosure is permitted by law and is authorized by
the client orthe employer; See Definitions. 28. CODE OF ETHICS FOR
PROFESSIONAL ACCOUNTANTS(b) Disclosure is required by law, for
example:(i) Production of documents or other provision of evidence
inthe course of legal proceedings; or(ii) Disclosure to the
appropriate public authorities ofinfringements of the law that come
to light; and(c) There is a professional duty or right to disclose,
when notprohibited by law:(i) To comply with the quality review of
a member body orprofessional body;(ii) To respond to an inquiry or
investigation by a member bodyor regulatory body;(iii) To protect
the professional interests of a professionalaccountant in legal
proceedings; or(iv) To comply with technical standards and ethics
requirements.140.8 In deciding whether to disclose confidential
information, professionalaccountants should consider the following
points:(a) Whether the interests of all parties, including third
parties whoseinterests may be affected, could be harmed if the
client oremployer consents to the disclosure of information by
theprofessional accountant;(b) Whether all the relevant information
is known and substantiated, tothe extent it is practicable; when
the situation involvesunsubstantiated facts, incomplete information
or unsubstantiatedconclusions, professional judgment should be used
in determiningthe type of disclosure to be made, if any; and(c) The
type of communication that is expected and to whom it isaddressed;
in particular, professional accountants should besatisfied that the
parties to whom the communication is addressedare appropriate
recipients.ETHICS 26 29. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTS27 ETHICSETHICSSECTION 150Professional Behavior150.1 The
principle of professional behavior imposes an obligation
onprofessional accountants to comply with relevant laws and
regulationsand avoid any action that may bring discredit to the
profession. Thisincludes actions which a reasonable and informed
third party, havingknowledge of all relevant information, would
conclude negatively affectsthe good reputation of the
profession.150.2 In marketing and promoting themselves and their
work, professionalaccountants should not bring the profession into
disrepute. Professionalaccountants should be honest and truthful
and should not:(a) Make exaggerated claims for the services they
are able to offer, thequalifications they possess, or experience
they have gained; or(b) Make disparaging references or
unsubstantiated comparisons to thework of others. 30. CODE OF
ETHICS FOR PROFESSIONAL ACCOUNTANTSPART BPROFESSIONAL ACCOUNTANTS
IN PUBLICPRACTICEETHICS 28PageSection 200 Introduction
................................................................................
29Section 210 Professional Appointment
..........................................................
35Section 220 Conflicts of Interest
....................................................................
39Section 230 Second Opinions
........................................................................
41Section 240 Fees and Other Types of Remuneration
..................................... 42Section 250 Marketing
Professional Services
................................................ 45Section 260
Gifts and Hospitality
..................................................................
46Section 270 Custody of Client Assets
............................................................
47Section 280 ObjectivityAll Services
..........................................................
48Section 290 IndependenceAssurance Engagements
................................... 49 31. CODE OF ETHICS FOR
PROFESSIONAL ACCOUNTANTS29 ETHICSETHICSSECTION 200Introduction200.1
This Part of the Code illustrates how the conceptual framework
containedin Part A is to be applied by professional accountants in
public practice.The examples in the following sections are not
intended to be, nor shouldthey be interpreted as, an exhaustive
list of all circumstances experiencedby a professional accountant
in public practice that may create threats tocompliance with the
principles. Consequently, it is not sufficient for aprofessional
accountant in public practice merely to comply with theexamples
presented; rather, the framework should be applied to theparticular
circumstances faced.200.2 A professional accountant in public
practice should not engage in anybusiness, occupation or activity
that impairs or might impair integrity,objectivity or the good
reputation of the profession and as a result wouldbe incompatible
with the rendering of professional services.Threats and
Safeguards200.3 Compliance with the fundamental principles may
potentially bethreatened by a broad range of circumstances. Many
threats fall into thefollowing categories:(a) Self-interest;(b)
Self-review;(c) Advocacy;(d) Familiarity; and(e) Intimidation.These
threats are discussed further in Part A of this Code.The nature and
significance of the threats may differ depending onwhether they
arise in relation to the provision of services to a
financialstatement audit client, a non-financial statement audit
assuranceclient* or a non-assurance client.200.4 Examples of
circumstances that may create self-interest threats for
aprofessional accountant in public practice include, but are not
limited to: A financial interest* in a client or jointly holding a
financialinterest with a client. Undue dependence on total fees
from a client. See Definitions. 32. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTS Having a close business relationship with a client.
Concern about the possibility of losing a client. Potential
employment with a client. Contingent fees* relating to an assurance
engagement. A loan to or from an assurance client or any of its
directors orofficers.200.5 Examples of circumstances that may
create self-review threats include,but are not limited to: The
discovery of a significant error during a re-evaluation of thework
of the professional accountant in public practice. Reporting on the
operation of financial systems after beinginvolved in their design
or implementation. Having prepared the original data used to
generate records that arethe subject matter of the engagement. A
member of the assurance team being, or having recently been,a
director or officer* of that client. A member of the assurance team
being, or having recently been,employed by the client in a position
to exert direct and significantinfluence over the subject matter of
the engagement. Performing a service for a client that directly
affects the subjectmatter of the assurance engagement.200.6
Examples of circumstances that may create advocacy threats include,
but arenot limited to: Promoting shares in a listed entity* when
that entity is a financialstatement audit client. Acting as an
advocate on behalf of an assurance client in litigationor disputes
with third parties.200.7 Examples of circumstances that may create
familiarity threats include, but arenot limited to: A member of the
engagement team having a close or immediatefamily relationship with
a director or officer of the client. A member of the engagement
team having a close or immediatefamily relationship with an
employee of the client who is in a See Definitions.ETHICS 30 33.
CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS31 ETHICSETHICSposition
to exert direct and significant influence over the subjectmatter of
the engagement. A former partner of the firm being a director or
officer of the clientor an employee in a position to exert direct
and significantinfluence over the subject matter of the engagement.
Accepting gifts or preferential treatment from a client, unless
thevalue is clearly insignificant. Long association of senior
personnel with the assurance client.200.8 Examples of circumstances
that may create intimidation threats include,but are not limited
to: Being threatened with dismissal or replacement in relation to
aclient engagement. Being threatened with litigation. Being
pressured to reduce inappropriately the extent of workperformed in
order to reduce fees.200.9 A professional accountant in public
practice may also find that specificcircumstances give rise to
unique threats to compliance with one or moreof the fundamental
principles. Such unique threats obviously cannot becategorized. In
either professional or business relationships, aprofessional
accountant in public practice should always be on the alertfor such
circumstances and threats.200.10 Safeguards that may eliminate or
reduce threats to an acceptable level fallinto two broad
categories:(a) Safeguards created by the profession, legislation or
regulation; and(b) Safeguards in the work environment.Examples of
safeguards created by the profession, legislation orregulation are
described in paragraph 100.12 of Part A of this Code.200.11 In the
work environment, the relevant safeguards will vary depending onthe
circumstances. Work environment safeguards comprise
firm-widesafeguards and engagement specific safeguards. A
professionalaccountant in public practice should exercise judgment
to determine howto best deal with an identified threat. In
exercising this judgment aprofessional accountant in public
practice should consider what areasonable and informed third party,
having knowledge of all relevantinformation, including the
significance of the threat and the safeguardsapplied, would
reasonably conclude to be acceptable. This considerationwill be
affected by matters such as the significance of the threat,
thenature of the engagement and the structure of the firm. 34. CODE
OF ETHICS FOR PROFESSIONAL ACCOUNTANTS200.12 Firm-wide safeguards
in the work environment may include: Leadership of the firm that
stresses the importance of compliancewith the fundamental
principles. Leadership of the firm that establishes the expectation
thatmembers of an assurance team will act in the public interest.
Policies and procedures to implement and monitor quality controlof
engagements. Documented policies regarding the identification of
threats tocompliance with the fundamental principles, the
evaluation of thesignificance of these threats and the
identification and theapplication of safeguards to eliminate or
reduce the threats, otherthan those that are clearly insignificant,
to an acceptable level. For firms that perform assurance
engagements, documentedindependence policies regarding the
identification of threats toindependence, the evaluation of the
significance of these threatsand the evaluation and application of
safeguards to eliminate orreduce the threats, other than those that
are clearly insignificant, toan acceptable level. Documented
internal policies and procedures requiring compliancewith the
fundamental principles. Policies and procedures that will enable
the identification ofinterests or relationships between the firm or
members ofengagement teams and clients. Policies and procedures to
monitor and, if necessary, manage thereliance on revenue received
from a single client. Using different partners and engagement teams
with separatereporting lines for the provision of non-assurance
services to anassurance client. Policies and procedures to prohibit
individuals who are notmembers of an engagement team from
inappropriately influencingthe outcome of the engagement. Timely
communication of a firms policies and procedures,including any
changes to them, to all partners and professionalstaff, and
appropriate training and education on such policies andprocedures.
See Definitions.ETHICS 32 35. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTS33 ETHICSETHICS Designating a member of senior
management to be responsible foroverseeing the adequate functioning
of the firms quality controlsystem. Advising partners and
professional staff of those assurance clientsand related entities
from which they must be independent. A disciplinary mechanism to
promote compliance with policiesand procedures. Published policies
and procedures to encourage and empower staffto communicate to
senior levels within the firm any issue relatingto compliance with
the fundamental principles that concerns them.200.13
Engagement-specific safeguards in the work environment may include:
Involving an additional professional accountant to review the
workdone or otherwise advise as necessary. Consulting an
independent third party, such as a committee ofindependent
directors, a professional regulatory body or anotherprofessional
accountant. Discussing ethical issues with those charged with
governance ofthe client. Disclosing to those charged with
governance of the client thenature of services provided and extent
of fees charged. Involving another firm to perform or re-perform
part of theengagement. Rotating senior assurance team
personnel.200.14 Depending on the nature of the engagement, a
professional accountant inpublic practice may also be able to rely
on safeguards that the client hasimplemented. However it is not
possible to rely solely on such safeguardsto reduce threats to an
acceptable level.200.15 Safeguards within the clients systems and
procedures may include: When a client appoints a firm in public
practice to perform anengagement, persons other than management
ratify or approve theappointment. The client has competent
employees with experience and seniorityto make managerial
decisions. The client has implemented internal procedures that
ensureobjective choices in commissioning non-assurance engagements.
36. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS The client has a
corporate governance structure that providesappropriate oversight
and communications regarding the firmsservices.ETHICS 34 37. CODE
OF ETHICS FOR PROFESSIONAL ACCOUNTANTS35 ETHICSETHICSSECTION
210Professional AppointmentClient Acceptance210.1 Before accepting
a new client relationship, a professional accountant inpublic
practice should consider whether acceptance would create anythreats
to compliance with the fundamental principles. Potential threats
tointegrity or professional behavior may be created from, for
example,questionable issues associated with the client (its owners,
managementand activities).210.2 Client issues that, if known, could
threaten compliance with thefundamental principles include, for
example, client involvement in illegalactivities (such as money
laundering), dishonesty or questionablefinancial reporting
practices.210.3 The significance of any threats should be
evaluated. If identified threatsare other than clearly
insignificant, safeguards should be considered andapplied as
necessary to eliminate them or reduce them to an
acceptablelevel.210.4 Appropriate safeguards may include obtaining
knowledge andunderstanding of the client, its owners, managers and
those responsiblefor its governance and business activities, or
securing the clientscommitment to improve corporate governance
practices or internalcontrols.210.5 Where it is not possible to
reduce the threats to an acceptable level, aprofessional accountant
in public practice should decline to enter into theclient
relationship.210.6 Acceptance decisions should be periodically
reviewed for recurring clientengagements.Engagement Acceptance210.7
A professional accountant in public practice should agree to
provide onlythose services that the professional accountant in
public practice iscompetent to perform. Before accepting a specific
client engagement, aprofessional accountant in public practice
should consider whetheracceptance would create any threats to
compliance with the fundamentalprinciples. For example, a
self-interest threat to professional competenceand due care is
created if the engagement team does not possess, orcannot acquire,
the competencies necessary to properly carry out
theengagement.210.8 A professional accountant in public practice
should evaluate thesignificance of identified threats and, if they
are other than clearly 38. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTSinsignificant, safeguards should be applied as necessary
to eliminate themor reduce them to an acceptable level. Such
safeguards may include: Acquiring an appropriate understanding of
the nature of theclients business, the complexity of its
operations, the specificrequirements of the engagement and the
purpose, nature and scopeof the work to be performed. Acquiring
knowledge of relevant industries or subject matters. Possessing or
obtaining experience with relevant regulatory orreporting
requirements. Assigning sufficient staff with the necessary
competencies. Using experts where necessary. Agreeing on a
realistic time frame for the performance of theengagement.
Complying with quality control policies and procedures designedto
provide reasonable assurance that specific engagements areaccepted
only when they can be performed competently.210.9 When a
professional accountant in public practice intends to rely on
theadvice or work of an expert, the professional accountant in
public practiceshould evaluate whether such reliance is warranted.
The professionalaccountant in public practice should consider
factors such as reputation,expertise, resources available and
applicable professional and ethicalstandards. Such information may
be gained from prior association withthe expert or from consulting
others.Changes in a Professional Appointment210.10 A professional
accountant in public practice who is asked to replaceanother
professional accountant in public practice, or who is
consideringtendering for an engagement currently held by another
professionalaccountant in public practice, should determine whether
there are anyreasons, professional or other, for not accepting the
engagement, such ascircumstances that threaten compliance with the
fundamental principles.For example, there may be a threat to
professional competence and duecare if a professional accountant in
public practice accepts theengagement before knowing all the
pertinent facts.210.11 The significance of the threats should be
evaluated. Depending on thenature of the engagement, this may
require direct communication with theexisting accountant to
establish the facts and circumstances behind the See
Definitions.ETHICS 36 39. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTS37 ETHICSETHICSproposed change so that the professional
accountant in public practice candecide whether it would be
appropriate to accept the engagement. Forexample, the apparent
reasons for the change in appointment may notfully reflect the
facts and may indicate disagreements with the existingaccountant
that may influence the decision as to whether to accept
theappointment.210.12 An existing accountant is bound by
confidentiality. The extent to whichthe professional accountant in
public practice can and should discuss theaffairs of a client with
a proposed accountant will depend on the nature ofthe engagement
and on:(a) Whether the clients permission to do so has been
obtained; or(b) The legal or ethical requirements relating to such
communicationsand disclosure, which may vary by jurisdiction.210.13
In the absence of specific instructions by the client, an
existingaccountant should not ordinarily volunteer information
about the clientsaffairs. Circumstances where it may be appropriate
to discloseconfidential information are set out in Section 140 of
Part A of this Code.210.14 If identified threats are other than
clearly insignificant, safeguards shouldbe considered and applied
as necessary to eliminate them or reduce themto an acceptable
level.210.15 Such safeguards may include: Discussing the clients
affairs fully and freely with the existingaccountant. Asking the
existing accountant to provide known information onany facts or
circumstances that, in the existing accountantsopinion, the
proposed accountant should be aware of beforedeciding whether to
accept the engagement. When replying to requests to submit tenders,
stating in the tenderthat, before accepting the engagement, contact
with the existingaccountant will be requested so that inquiries may
be made as towhether there are any professional or other reasons
why theappointment should not be accepted.210.16 A professional
accountant in public practice will ordinarily need to obtainthe
clients permission, preferably in writing, to initiate discussion
withan existing accountant. Once that permission is obtained, the
existingaccountant should comply with relevant legal and other
regulationsgoverning such requests. Where the existing accountant
providesinformation, it should be provided honestly and
unambiguously. If theproposed accountant is unable to communicate
with the existingaccountant, the proposed accountant should try to
obtain information 40. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTSabout any possible threats by other means such as
through inquiries ofthird parties or background investigations on
senior management or thosecharged with governance of the
client.210.17 Where the threats cannot be eliminated or reduced to
an acceptable levelthrough the application of safeguards, a
professional accountant in publicpractice should, unless there is
satisfaction as to necessary facts by othermeans, decline the
engagement.210.18 A professional accountant in public practice may
be asked to undertakework that is complementary or additional to
the work of the existingaccountant. Such circumstances may give
rise to potential threats toprofessional competence and due care
resulting from, for example, a lackof or incomplete information.
Safeguards against such threats includenotifying the existing
accountant of the proposed work, which would givethe existing
accountant the opportunity to provide any relevantinformation
needed for the proper conduct of the work.ETHICS 38 41. CODE OF
ETHICS FOR PROFESSIONAL ACCOUNTANTS39 ETHICSETHICSSECTION
220Conflicts of Interest220.1 A professional accountant in public
practice should take reasonable stepsto identify circumstances that
could pose a conflict of interest. Suchcircumstances may give rise
to threats to compliance with thefundamental principles. For
example, a threat to objectivity may becreated when a professional
accountant in public practice competesdirectly with a client or has
a joint venture or similar arrangement with amajor competitor of a
client. A threat to objectivity or confidentiality mayalso be
created when a professional accountant in public practiceperforms
services for clients whose interests are in conflict or the
clientsare in dispute with each other in relation to the matter or
transaction inquestion.220.2 A professional accountant in public
practice should evaluate thesignificance of any threats. Evaluation
includes considering, beforeaccepting or continuing a client
relationship or specific engagement,whether the professional
accountant in public practice has any businessinterests, or
relationships with the client or a third party that could giverise
to threats. If threats are other than clearly insignificant,
safeguardsshould be considered and applied as necessary to
eliminate them orreduce them to an acceptable level.220.3 Depending
upon the circumstances giving rise to the conflict,
safeguardsshould ordinarily include the professional accountant in
public practice:(a) Notifying the client of the firms business
interest or activities thatmay represent a conflict of interest,
and obtaining their consent toact in such circumstances; or(b)
Notifying all known relevant parties that the
professionalaccountant in public practice is acting for two or more
parties inrespect of a matter where their respective interests are
in conflict,and obtaining their consent to so act; or(c) Notifying
the client that the professional accountant in publicpractice does
not act exclusively for any one client in the provisionof proposed
services (for example, in a particular market sector orwith respect
to a specific service) and obtaining their consent to soact.220.4
The following additional safeguards should also be considered:(a)
The use of separate engagement teams; and(b) Procedures to prevent
access to information (e.g., strict physicalseparation of such
teams, confidential and secure data filing); and 42. CODE OF ETHICS
FOR PROFESSIONAL ACCOUNTANTS(c) Clear guidelines for members of the
engagement team on issues ofsecurity and confidentiality; and(d)
The use of confidentiality agreements signed by employees
andpartners of the firm; and(e) Regular review of the application
of safeguards by a seniorindividual not involved with relevant
client engagements.220.5 Where a conflict of interest poses a
threat to one or more of thefundamental principles, including
objectivity, confidentiality orprofessional behavior, that cannot
be eliminated or reduced to anacceptable level through the
application of safeguards, the professionalaccountant in public
practice should conclude that it is not appropriate toaccept a
specific engagement or that resignation from one or moreconflicting
engagements is required.220.6 Where a professional accountant in
public practice has requested consentfrom a client to act for
another party (which may or may not be anexisting client) in
respect of a matter where the respective interests are inconflict
and that consent has been refused by the client, then
theprofessional accountant in public practice must not continue to
act for oneof the parties in the matter giving rise to the conflict
of interest.ETHICS 40 43. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTS41 ETHICSETHICSSECTION 230Second Opinions230.1
Situations where a professional accountant in public practice is
asked toprovide a second opinion on the application of accounting,
auditing,reporting or other standards or principles to specific
circumstances ortransactions by or on behalf of a company or an
entity that is not anexisting client may give rise to threats to
compliance with thefundamental principles. For example, there may
be a threat toprofessional competence and due care in circumstances
where the secondopinion is not based on the same set of facts that
were made available tothe existing accountant, or is based on
inadequate evidence. Thesignificance of the threat will depend on
the circumstances of the requestand all the other available facts
and assumptions relevant to theexpression of a professional
judgment.230.2 When asked to provide such an opinion, a
professional accountant inpublic practice should evaluate the
significance of the threats and, if theyare other than clearly
insignificant, safeguards should be considered andapplied as
necessary to eliminate them or reduce them to an acceptablelevel.
Such safeguards may include seeking client permission to contactthe
existing accountant, describing the limitations surrounding
anyopinion in communications with the client and providing the
existingaccountant with a copy of the opinion.230.3 If the company
or entity seeking the opinion will not permitcommunication with the
existing accountant, a professional accountant inpublic practice
should consider whether, taking all the circumstances intoaccount,
it is appropriate to provide the opinion sought. 44. CODE OF ETHICS
FOR PROFESSIONAL ACCOUNTANTSSECTION 240Fees and Other Types of
Remuneration240.1 When entering into negotiations regarding
professional services, aprofessional accountant in public practice
may quote whatever feedeemed to be appropriate. The fact that one
professional accountant inpublic practice may quote a fee lower
than another is not in itselfunethical. Nevertheless, there may be
threats to compliance with thefundamental principles arising from
the level of fees quoted. Forexample, a self-interest threat to
professional competence and due care iscreated if the fee quoted is
so low that it may be difficult to perform theengagement in
accordance with applicable technical and professionalstandards for
that price.240.2 The significance of such threats will depend on
factors such as the levelof fee quoted and the services to which it
applies. In view of thesepotential threats, safeguards should be
considered and applied asnecessary to eliminate them or reduce them
to an acceptable level.Safeguards which may be adopted include:
Making the client aware of the terms of the engagement and,
inparticular, the basis on which fees are charged and which
servicesare covered by the quoted fee. Assigning appropriate time
and qualified staff to the task.240.3 Contingent fees are widely
used for certain types of non-assuranceengagements.1 They may,
however, give rise to threats to compliancewith the fundamental
principles in certain circumstances. They may giverise to a
self-interest threat to objectivity. The significance of such
threatswill depend on factors including: The nature of the
engagement. The range of possible fee amounts. The basis for
determining the fee. Whether the outcome or result of the
transaction is to be reviewedby an independent third party.240.4
The significance of such threats should be evaluated and, if they
are otherthan clearly insignificant, safeguards should be
considered and applied asnecessary to eliminate or reduce them to
an acceptable level. Suchsafeguards may include:1 Contingent fees
for non-assurance services provided to assurance clients are
discussed in Section290 of this part of the Code.ETHICS 42 45. CODE
OF ETHICS FOR PROFESSIONAL ACCOUNTANTS43 ETHICSETHICS An advance
written agreement with the client as to the basis ofremuneration.
Disclosure to intended users of the work performed by
theprofessional accountant in public practice and the basis
ofremuneration. Quality control policies and procedures. Review by
an objective third party of the work performed by theprofessional
accountant in public practice.240.5 In certain circumstances, a
professional accountant in public practice mayreceive a referral
fee or commission relating to a client. For example,where the
professional accountant in public practice does not provide
thespecific service required, a fee may be received for referring a
continuingclient to another professional accountant in public
practice or otherexpert. A professional accountant in public
practice may receive acommission from a third party (e.g., a
software vendor) in connectionwith the sale of goods or services to
a client. Accepting such a referral feeor commission may give rise
to self-interest threats to objectivity andprofessional competence
and due care.240.6 A professional accountant in public practice may
also pay a referral fee toobtain a client, for example, where the
client continues as a client ofanother professional accountant in
public practice but requires specialistservices not offered by the
existing accountant. The payment of such areferral fee may also
create a self-interest threat to objectivity andprofessional
competence and due care.240.7 A professional accountant in public
practice should not pay or receive areferral fee or commission,
unless the professional accountant in publicpractice has
established safeguards to eliminate the threats or reduce themto an
acceptable level. Such safeguards may include: Disclosing to the
client any arrangements to pay a referral fee toanother
professional accountant for the work referred. Disclosing to the
client any arrangements to receive a referral feefor referring the
client to another professional accountant in publicpractice.
Obtaining advance agreement from the client for
commissionarrangements in connection with the sale by a third party
of goodsor services to the client.240.8 A professional accountant
in public practice may purchase all or part ofanother firm on the
basis that payments will be made to individualsformerly owning the
firm or to their heirs or estates. Such payments are 46. CODE OF
ETHICS FOR PROFESSIONAL ACCOUNTANTSnot regarded as commissions or
referral fees for the purpose of paragraph240.5240.7 above.ETHICS
44 47. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS45
ETHICSETHICSSECTION 250Marketing Professional Services250.1 When a
professional accountant in public practice solicits new workthrough
advertising or other forms of marketing, there may be
potentialthreats to compliance with the fundamental principles. For
example, aself-interest threat to compliance with the principle of
professionalbehavior is created if services, achievements or
products are marketed ina way that is inconsistent with that
principle.250.2 A professional accountant in public practice should
not bring theprofession into disrepute when marketing professional
services. Theprofessional accountant in public practice should be
honest and truthfuland should not: Make exaggerated claims for
services offered, qualificationspossessed or experience gained; or
Make disparaging references to unsubstantiated comparisons to
thework of another.If the professional accountant in public
practice is in doubt whether aproposed form of advertising or
marketing is appropriate, the professionalaccountant in public
practice should consult with the relevant professionalbody. See
Definitions. 48. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION
260Gifts and Hospitality260.1 A professional accountant in public
practice, or an immediate or closefamily member, may be offered
gifts and hospitality from a client. Suchan offer ordinarily gives
rise to threats to compliance with thefundamental principles. For
example, self-interest threats to objectivitymay be created if a
gift from a client is accepted; intimidation threats toobjectivity
may result from the possibility of such offers being
madepublic.260.2 The significance of such threats will depend on
the nature, value andintent behind the offer. Where gifts or
hospitality which a reasonable andinformed third party, having
knowledge of all relevant information,would consider clearly
insignificant are made a professional accountantin public practice
may conclude that the offer is made in the normalcourse of business
without the specific intent to influence decisionmaking or to
obtain information. In such cases, the professionalaccountant in
public practice may generally conclude that there is nosignificant
threat to compliance with the fundamental principles.260.3 If
evaluated threats are other than clearly insignificant, safeguards
shouldbe considered and applied as necessary to eliminate them or
reduce themto an acceptable level. When the threats cannot be
eliminated or reducedto an acceptable level through the application
of safeguards, aprofessional accountant in public practice should
not accept such an offer.ETHICS 46 49. CODE OF ETHICS FOR
PROFESSIONAL ACCOUNTANTS47 ETHICSETHICSSECTION 270Custody of Client
Assets270.1 A professional accountant in public practice should not
assume custodyof client monies or other assets unless permitted to
do so by law and, ifso, in compliance with any additional legal
duties imposed on aprofessional accountant in public practice
holding such assets.270.2 The holding of client assets creates
threats to compliance with thefundamental principles; for example,
there is a self-interest threat toprofessional behavior and may be
a self interest threat to objectivityarising from holding client
assets. To safeguard against such threats, aprofessional accountant
in public practice entrusted with money (or otherassets) belonging
to others should:(a) Keep such assets separately from personal or
firm assets; and(b) Use such assets only for the purpose for which
they are intended;and(c) At all times, be ready to account for
those assets, and any income,dividends or gains generated, to any
persons entitled to suchaccounting; and(d) Comply with all relevant
laws and regulations relevant to theholding of and accounting for
such assets.270.3 In addition, professional accountants in public
practice should be awareof threats to compliance with the
fundamental principles throughassociation with such assets, for
example, if the assets were found toderive from illegal activities,
such as money laundering. As part of clientand engagement
acceptance procedures for such services, professionalaccountants in
public practice should make appropriate inquiries aboutthe source
of such assets and should consider their legal and
regulatoryobligations. They may also consider seeking legal advice.
50. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION
280ObjectivityAll Services280.1 A professional accountant in public
practice should consider whenproviding any professional service
whether there are threats tocompliance with the fundamental
principle of objectivity resulting fromhaving interests in, or
relationships with, a client or directors, officers oremployees.
For example, a familiarity threat to objectivity may be createdfrom
a family or close personal or business relationship.280.2 A
professional accountant in public practice who provides an
assuranceservice is required to be independent of the assurance
client.Independence of mind and in appearance is necessary to
enable theprofessional accountant in public practice to express a
conclusion, and beseen to express a conclusion, without bias,
conflict of interest or undueinfluence of others. Section 290
provides specific guidance onindependence requirements for
professional accountants in publicpractice when performing an
assurance engagement.280.3 The existence of threats to objectivity
when providing any professionalservice will depend upon the
particular circumstances of the engagementand the nature of the
work that the professional accountant in publicpractice is
performing.280.4 A professional accountant in public practice
should evaluate thesignificance of identified threats and, if they
are other than clearlyinsignificant, safeguards should be
considered and applied as necessary toeliminate them or reduce them
to an acceptable level. Such safeguardsmay include: Withdrawing
from the engagement team. Supervisory procedures. Terminating the
financial or business relationship giving rise to thethreat.
Discussing the issue with higher levels of management within
thefirm. Discussing the issue with those charged with governance of
theclient.ETHICS 48 51. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTS49 ETHICSETHICSSECTION 2902IndependenceAssurance
Engagements290.1 In the case of an assurance engagement it is in
the public interest and,therefore, required by this Code of Ethics,
that members of assuranceteams,* firms and, when applicable,
network firms be independent ofassurance clients.290.2 Assurance
engagements are designed to enhance intended users degreeof
confidence about the outcome of the evaluation or measurement of
asubject matter against criteria. The International Framework
forAssurance Engagements (the Assurance Framework) issued by
theInternational Auditing and Assurance Standards Board describes
theelements and objectives of an assurance engagement, and
identifiesengagements to which International Standards on Auditing
(ISAs),International Standards on Review Engagements (ISREs)
andInternational Standards on Assurance Engagements (ISAEs) apply.
For adescription of the elements and objectives of an assurance
engagementreference should be made to the Assurance Framework.290.3
As further explained in the Assurance Framework, in an
assuranceengagement the professional accountant in public practice
expresses aconclusion designed to enhance the degree of confidence
of the intendedusers other than the responsible party about the
outcome of the evaluationor measurement of a subject matter against
criteria.290.4 The outcome of the evaluation or measurement of a
subject matter is theinformation that results from applying the
criteria to the subject matter.The term subject matter information
is used to mean the outcome of theevaluation or measurement of
subject matter. For example: The recognition, measurement,
presentation and disclosurerepresented in the financial statements*
(subject matterinformation) result from applying a financial
reporting frameworkfor recognition, measurement, presentation and
disclosure, such asInternational Financial Reporting Standards,
(criteria) to an entitysfinancial position, financial performance
and cash flows (subjectmatter). An assertion about the
effectiveness of internal control (subjectmatter information)
results from applying a framework for2 In July 2006, the
International Ethics Standards Board for Accountants revised the
definition ofnetwork firm used in Section 290. The revision to
Section 290 is effective for assurance reportsdated on or after
December 31, 2008 and is included in this handbook on page 124. See
Definitions. 52. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTSevaluating the effectiveness of internal control, such
as COSO orCoCo, (criteria) to internal control, a process (subject
matter).290.5 Assurance engagements may be assertion-based or
direct reporting. Ineither case they involve three separate
parties: a public accountant inpublic practice, a responsible party
and intended users.290.6 In an assertion-based assurance
engagement, which includes a financialstatement audit engagement,
the evaluation or measurement of thesubject matter is performed by
the responsible party, and the subjectmatter information is in the
form of an assertion by the responsible partythat is made available
to the intended users.290.7 In a direct reporting assurance
engagement the professional accountant inpublic practice either
directly performs the evaluation or measurement ofthe subject
matter, or obtains a representation from the responsible partythat
has performed the evaluation or measurement that is not available
tothe intended users. The subject matter information is provided to
theintended users in the assurance report.290.8 Independence
requires:Independence of MindThe