- 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 2006 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 by the International
Federation of Accountants. All rights reserved. Usedby permission.
Otherwise, written permission from IFAC is required to
reproduce,store or transmit this document, except as permitted by
law. [email protected]: 1-931949-52-2
2. HANDBOOK OF INTERNATIONAL AUDITING, ASSURANCE, AND
ETHICSPRONOUNCEMENTS2006 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 1,2006. In this handbook, the text of
pronouncements that become effective at a date afterJanuary 1, 2006
has been shaded.How this Handbook is ArrangedThe contents of the
handbook are arranged by section as follows:Changes of Substance
from the 2005 Edition of the Handbook and Recent Developments
......................................................................
1Background Information on the International Federation of
Accountants ..... 5Ethics
.............................................................................................................
11Auditing, Assurance, and Related Services
...................................................219 3.
CHANGESCHANGES OF SUBSTANCE FROM THE 2005 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). References to IASs andIFRSs are to the IASs and IFRSs in
effect at the date of preparing a pronouncement.Accordingly,
readers are cautioned that, where a revised IAS or IFRS has been
issuedsubsequently, reference should be made to the most recent IAS
or IFRS.Pronouncements Issued by the IAASBAdditionsThe following
additions have been made in this edition of the handbook:The
Glossary of Terms has been updated.International Standard on
Auditing (ISA) 230 (Revised), Audit Documentation. ISA 230
(Revised) is effective for audits of financial information for
periods beginning on or after June 15, 2006. ISA 230,
Documentation, remains in effect and is retained in this handbook,
but will be withdrawn when ISA 230 (Revised) becomes effective.ISA
230 (Revised) gave rise to conforming amendments1 to ISA 200,
Objective and General Principles Governing an Audit of Financial
Statements, ISA 330, The Auditors Procedures in Response to
Assessed Risks, and International Standard on Quality Control
(ISQC) 1, Quality Control for Firms that Perform Audits and Reviews
of Historical Financial Information and Other Assurance and Related
Services Engagements. The conforming amendments are reflected in
the appendices to ISA 200, ISA 330 and ISQC 1. The conforming
amendments to ISA 200 and ISA 330 are effective for audits of
financial statements for periods beginning on or after June 15,
2006. Systems for quality control in compliance with ISQC 1, as
amended, are required to be established by June 15,
2006.1Conforming amendment means an amendment to an existing
Standard arising from the revision of an other Standard or the
development of a new Standard.1 CHANGES 4. CHANGES OF SUBSTANCE AND
RECENT DEVELOPMENTS International Standard on Review Engagements
(ISRE) 2410, Review of InterimFinancial Information Performed by
the Independent Auditor of the Entity iseffective for reviews of
interim financial information for periods beginning on orafter
December 15, 2006. ISRE 2410 gave rise to conforming amendments to
ISA 210, Terms of AuditEngagements, and ISRE 2400, Engagements to
Review Financial Statements.The conforming amendments are reflected
in the appendices to ISA 210 and ISRE2400. The conforming
amendments to ISA 210 are effective for audits of
financialstatements for periods beginning on or after December 15,
2006. The conformingamendments to ISRE 2400 are effective for
reviews of financial statements forperiods beginning on or after
December 15, 2006.Withdrawals ISA 220, Quality Control for Audit
Work was withdrawn in June 2005 when ISA220 (Revised), Quality
Control for Audits of Historical Financial Informationbecame
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.Exposure DraftsThe IAASB has issued
exposure drafts on the following: ISA 260 (Revised), Communications
with Those Charged with Governance ISA 320 (Revised), Materiality
in the Identification and Evaluation ofMisstatements ISA 540
(Revised), Auditing Accounting Estimates and Related
Disclosures(Other than Those Involving Fair Value Measurements and
Disclosures) ISA 550 (Revised), Related Parties ISA 600 (Revised),
The Audit of Group Financial Statements ISA 701, The Independent
Auditors Report on Other Historical FinancialInformation ISA 705,
Modifications to the Opinion in the Independent Auditors Report ISA
706, Emphasis of Matter Paragraphs and Other Matters Paragraphs in
theIndependent Auditors ReportCHANGES2 5. CHANGES OF SUBSTANCE AND
RECENT DEVELOPMENTSCHANGES ISA 800, The Independent Auditors Report
on Summary Audited FinancialStatements Improving the Clarity of
IAASB Standards a draft of four ISAs written in animproved styleOn
the basis of consultations, the IAASB is confident that the basis
for improving theclarity of its Standards explained in the Exposure
Draft is appropriate and will receivesufficiently wide acceptance.
The comment period for the Exposure Draft closes onFebruary 28,
2006. It can be downloaded from the IAASBs website
athttp://www.iaasb.org.Once finalized, the IAASB intends to apply
the new drafting conventions to as manyStandards as practicable in
the shortest possible time, without compromising dueprocess. The
IAASBs initial focus will be on ISAs, as opposed to the
otherInternational Standards, reflecting the importance that audits
conducted in accordancewith ISAs have to the public interest.The
IAASB project to improve the clarity of its Standards will have a
significant effecton the ISAs to be included in future editions of
this handbook.For additional information on recent developments and
to obtain final pronouncementsissued subsequent to December 31,
2005 or outstanding exposure drafts visit theIAASBs website at
http://www.iaasb.org.Pronouncements Issued by the International
Ethics StandardsBoard for AccountantsAdditionsDuring 2005 the
International Ethics Standards Board for Accountants (IESBA) issued
arevised Code of Ethics for Professional Accountants (the Code)
establishing aconceptual framework for all professional accountants
to ensure compliance with thefive fundamental principles of
professional ethics. The revised Code is effective on June30, 2006.
Section 290 is applicable to assurance engagements when the
assurance reportis dated on or after June 30, 2006. Earlier
application is encouraged.Recent Exposure DraftsThe IESBA has
issued as exposure draft proposing a revision to the network
firmdefinition contained in Section 290.For additional information
on recent developments and to obtain final pronouncementsissued
subsequent to December 31, 2005 or outstanding exposure drafts
visit theIESBAs page on the IFAC website at http://www.ifac.org/. 3
CHANGES 6. CHANGES OF SUBSTANCE AND RECENT
DEVELOPMENTSInternational Professional Practice Statement
1International Professional Practice Statement (IPPS) 1, Assuring
the Quality ofProfessional Services was issued by the IFAC Council
in August 1999. IPPS 1 wassuperseded by Statement of Membership
Obligation 1, Quality Assurance, when itbecame effective on
December 31, 2005. The Statements of Membership Obligationscan be
downloaded from IFACs website at http://www.ifac.org.CHANGES4 7.
BACKGROUND INFORMATION ON THE INTERNATIONAL 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 the
IFACprofessions 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 financial reporting
standards; 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;5IFAC 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
163 member bodies from every part of the globe, representingmore
than 2.5 million accountants in public practice, industry and
commerce, the publicsector, and education. No other accountancy
body in the world and few otherprofessional organizations have the
broad-based international support that characterizesIFAC.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).IFAC 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
international Public Interest Oversight Board(PIOB) for the
accountancy profession (see below).IFAC6 9. BACKGROUND INFORMATION
ON THEINTERNATIONAL FEDERATION OF ACCOUNTANTSThe terms of
reference, due process and operating procedures of the IFAC
standard-setting boards are available from the IFAC website at
http://www.ifac.org.IFAC actively supports convergence to ISAs and
other standards developed by theIFAC 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 of IFAChistorical 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 (formerly the
Ethics Committee), establishesethical requirements for professional
accountants and provides a conceptual frameworkfor all professional
accountants to ensure compliance with the five
fundamentalprinciples of professional ethics. These principles are
integrity, objectivity, professionalcompetence and due care,
confidentiality, and professional behavior. Under theframework, all
professional accountants are required to identify threats to
thesefundamental principles and, if there are threats, apply
safeguards to ensure that theprinciples are not compromised. A
member body of IFAC or firm 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 2006 edition of IFACs Handbook of
InternationalPublic Sector Accounting Pronouncements and are also
available from the IFAC 7 IFAC 10. BACKGROUND INFORMATION ON THE
INTERNATIONAL 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) (formerly the Education Committee)develops International
Education Standards, setting the benchmarks for the education
ofmembers of the accountancy profession. All member bodies are
required to comply withthose standards, which address the education
process leading to qualification as aprofessional accountant as
well as the ongoing continuing professional development ofmembers
of the profession. The IAESB also develops other guidance to assist
memberbodies and accounting educators implement and achieve best
practice in accountingeducation.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 best practice guidance
to another growingconstituency: small- and medium-sized practices
(SMPs). IFACs SMP Committee(formerly the SMP Permanent Task Force)
develops papers on topics of global concernand provides input in
the development of international standards and on the work of
theIFAC standard-setting boards. The committee also investigates
ways in which IFAC,together with its member bodies, can respond to
the needs of accountants operating insmall and medium enterprises
and practices.Developing NationsIFACs Developing Nations Committee
(formerly the Developing Nations PermanentTask Force) supports the
development of the accountancy profession in all regions ofthe
world by representing and addressing the interests of developing
nations and byproviding guidance to strengthen the accountancy
profession worldwide. The committeealso seeks resources and
development assistance from member bodies and otherorganizations on
their behalf.IFAC8 11. BACKGROUND INFORMATION ON THEINTERNATIONAL
FEDERATION OF ACCOUNTANTSIFAC 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 howmember bodies 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 member IFACbodies 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 eight
representatives and two observermembers nominated by international
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, the Chairs of the IAASB, the Transnational
AuditorsCommittee, the Forum of Firms, and up to four other members
designated by the IFACBoard. It works with the MG and addresses
issues related to the regulation of theprofession.IFAC Structure
and OperationsGovernance of IFAC rests with its Board and Council.
The IFAC Council comprisesone representative from each member body.
The Board is a smaller group responsible9IFAC 12. BACKGROUND
INFORMATION ON THEINTERNATIONAL FEDERATION OF ACCOUNTANTSfor policy
setting. As representatives of the worldwide accountancy
profession, Boardmembers take an oath of office to act with
integrity and in the public interest.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 memberbodies, regional accountancy bodies,
standard setters, regulators and others to includelinks from their
own websites, or print materials, to the publications on IFACs
website.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. ETHICS CONTENTSPageCode of Ethics for Professional Accountants
(Issued July 1996; Revised January 1998, November 2001 and June
2004) ......................................12Code of Ethics for
Professional Accountants (Issued June 2005)
..................109For additional information on recent
developments and to obtain final pronouncementsissued subsequent to
December 31, 2005 or outstanding exposure drafts visit theIESBAs
page on the IFAC website at http://www.ifac.org/.ETHICS TABLE OF
CONTENTS11 ETHICS 14. July 1996 Revised January 1998, November 2001
and June 2004CODE OF ETHICS FORPROFESSIONAL ACCOUNTANTS(This Code
is effective but will be withdrawn on June 30, 2006 when the Code
issued in June 2005 becomes effective) CONTENTS PageDefinitions
......................................................................................................14Introduction
....................................................................................................
19The Public Interest
.........................................................................................
20Objectives
......................................................................................................
21Fundamental Principles
..................................................................................
22The Code
........................................................................................................
23PART AAPPLICABLE TO ALL PROFESSIONAL ACCOUNTANTS1. Integrity and
Objectivity...................................................................
252. Resolution of Ethical Conflicts
........................................................ 263.
Professional Competence
.................................................................284.
Confidentiality
.................................................................................295.
Tax Practice
.....................................................................................
316. Cross Border Activities
...................................................................337.
Publicity
...........................................................................................34PART
BAPPLICABLE TO PROFESSIONAL ACCOUNTANTSIN PUBLIC PRACTICE8.
Independence
...................................................................................
35 Application of Principles to Specific Situations
..............................50 Section 8 Interpretations
..................................................................
859. Professional Competence and Responsibilities Regarding the Use
of
Non-Accountants.............................................................8710.Fees
and Commissions
.....................................................................
88See page 109. The Code issued in June 2005 is effective on June
30, 2006.ETHICS12 15. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTS11. Activities Incompatible with the Practice of Public
Accountancy .......9112. Clients Monies
................................................................................
9213. Relations with Other Professional Accountants inPublic
Practice
.................................................................................9414.
Advertising and Solicitation
............................................................
100PART CAPPLICABLE TO EMPLOYED PROFESSIONALACCOUNTANTS15. Conflict
of Loyalties
........................................................................10516.
Support for Professional Colleagues
............................................... 10617. Professional
Competence
................................................................10718.
Presentation of Information
............................................................. 108
ETHICS 13 ETHICS 16. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTSDefinitionsIn this Code of Ethics for Professional
Accountants the following expressions appearin bold type when they
are first used and have the following meanings assigned
tothem:Advertising The communication to the public of information
as tothe services or skills provided by professionalaccountants in
public practice with a view to procuringprofessional business.Audit
clientAn entity in respect of which a firm conducts an
auditengagement. When the audit client is a listed entity,audit
client will always include its related entities.Audit engagementAn
assurance engagement to provide a high level ofassurance that
financial statements are free of materialmisstatement, such as an
engagement in accordance withInternational Standards on Auditing.
This includes astatutory audit which is an audit required by
nationallegislation or other regulation.Assurance clientAn entity
in respect of which a firm conducts anassurance
engagement.Assurance engagementAn engagement conducted to
provide:(a) A high level of assurance that the subject
matterconforms in all material respects with identifiedsuitable
criteria; or(b) A moderate level of assurance that the
subjectmatter is plausible in the circumstances.This would include
an engagement in accordance withthe International Standard on
Assurance Engagementsissued by the International Auditing and
AssuranceStandards Board or in accordance with specificstandards
for assurance engagements issued by theInternational Auditing and
Assurance Standards Boardsuch as an audit or review of financial
statements inaccordance with International Standards on
Auditing.Assurance team(a) All professionals participating in the
assuranceengagement;(b) All others within a firm who can
directlyinfluence the outcome of the assuranceengagement,
including: 14ETHICS 17. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS
Those who recommend the compensation of, or who provide direct
supervisory, management or other oversight of the assurance
engagement partner in connection with the performance of the
assurance engagement. For the purposes of an audit engagement this
includes those at all successively senior levels above the lead
engagement partner through the firms chief executive; Those who
provide consultation regarding technical or industry specific
issues, transactions or events for the assurance engagement; and
Those who provide quality control for the assurance engagement;
and(c) For the purposes of an audit client, all those withina
network firm who can directly influence theETHICSoutcome of the
audit engagement.Client accountAny bank account which is used
solely for the bankingof clients monies.Clients monies Any monies
including documents of title to moneye.g., bills of exchange,
promissory notes, and documentsof title which can be converted into
money e.g., bearerbonds received by a professional accountant in
publicpractice to be held or paid out on the instruction of
theperson from whom or on whose behalf they arereceived.Close
familyA parent, non-dependent child or sibling.Direct financial
interest A financial interest: Owned directly by and under the
control of anindividual or entity (including those managed on
adiscretionary basis by others); or Beneficially owned through a
collective investmentvehicle, estate, trust or other intermediary
overwhich the individual or entity has control.Directors and
officersThose charged with the governance of an entity,regardless
of their title, which may vary from country tocountry.15ETHICS 18.
CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSEmployed professional A
professional accountant employed in industry,accountantcommerce,
the public sector or education.Existing accountant A professional
accountant in public practice currentlyholding an audit appointment
or carrying outaccounting, taxation, consulting or similar
professionalservices for a client.Financial interestAn interest in
an equity or other security, debenture, loanor other debt
instrument of an entity, including rightsand obligations to acquire
such an interest andderivatives directly related to such
interest.Firm(a) A sole practitioner, partnershiporcorporation of
professional accountants;(b) An entity that controls such parties;
and(c) An entity controlled by such parties.Immediate familyA
spouse (or equivalent) or dependent.IndependenceIndependence is:(a)
Independence of mind the state of mind thatpermits the provision of
an opinion without beingaffected by influences that
compromiseprofessional judgment, allowing an individual toact with
integrity, and exercise objectivity andprofessional skepticism;
and(b) Independence in appearance the avoidance offacts and
circumstances that are so significant areasonable and informed
third party, havingknowledge of all relevant information,
includingany safeguards applied, would reasonablyconclude a firms,
or a member of the assuranceteams, integrity, objectivity or
professionalskepticism had been compromised.Indirect financialA
financial interest beneficially owned through ainterestcollective
investment vehicle, estate, trust or otherintermediary over which
the individual or entity has nocontrol.Lead engagement In
connection with an audit, the partner responsible forpartner
signing the report on the consolidated financialstatements of the
audit client, and, where relevant, thepartner responsible for
signing the report in respect ofany entity whose financial
statements form part of theETHICS 16 19. CODE OF ETHICS FOR
PROFESSIONAL ACCOUNTANTSconsolidated financial statements and on
which aseparate stand-alone report is issued. When noconsolidated
financial statements are prepared, the leadengagement partner would
be the partner responsible forsigning the report on the financial
statements.Listed entity An entity whose shares, stock or debt are
quoted orlisted on a recognized stock exchange, or are
marketedunder the regulations of a recognized stock exchange
orother equivalent body.Network firmAn entity under common control,
ownership ormanagement with the firm or any entity that areasonable
and informed third party having knowledgeof all relevant
information would reasonably conclude asbeing part of the firm
nationally or internationally.Objectivity A combination of
impartiality, intellectual honesty and afreedom from conflicts of
interest.OfficeA distinct sub-group, whether organized on
geographicalor practice lines.ETHICSPracticeA sole practitioner, a
partnership or a corporation ofprofessional accountants which
offers professionalservices to the public.Professional accountant
Those persons, whether they be in public practice,(including a sole
practitioner, partnership or corporatebody), industry, commerce,
the public sector oreducation, who are members of an IFAC member
body.Professional accountant Each partner or person occupying a
position similar toin public practicethat of a partner, and each
employee in a practiceproviding professional services to a client
irrespective oftheir functional classification (e.g., audit, tax
orconsulting) and professional accountants in a practicehaving
managerial responsibilities. This term is alsoused to refer to a
firm of professional accountants inpublic practice.Professional
services Any service requiring accountancy or related
skillsperformed by a professional accountant includingaccounting,
auditing, taxation, management consultingand financial management
services.Publicity The communication to the public of facts about
aprofessional accountant which are not designed for thedeliberate
promotion of that professional accountant. 17 ETHICS 20. CODE OF
ETHICS FOR PROFESSIONAL ACCOUNTANTSReceiving accountantA
professional accountant in public practice to whomthe existing
accountant or client of the existingaccountant has referred audit,
accounting, taxation,consulting or similar appointments, or who is
consultedin order to meet the needs of the client.Related entityAn
entity that has any of the following relationshipswith the
client:(a) An entity that has direct or indirect control overthe
client provided the client is material to suchentity;(b) An entity
with a direct financial interest in theclient provided that such
entity has significantinfluence over the client and the interest in
theclient is material to such entity;(c) An entity over which the
client has direct orindirect control;(d) An entity in which the
client, or an entity relatedto the client under (c) above, has a
direct financialinterest that gives it significant influence
oversuch entity and the interest is material to the clientand its
related entity in (c); and(e) An entity which is under common
control with theclient (hereinafter a sister entity) provided
thesister entity and the client are both material to theentity that
controls both the client and sister entity.SolicitationThe approach
to a potential client for the purpose ofoffering professional
services.ETHICS 18 21. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTSIntroduction 1. The International Federation of
Accountants (IFAC) believes that due tonational differences of
culture, language, legal and social systems, the taskof preparing
detailed ethical requirements is primarily that of the memberbodies
in each country concerned and that they also have the
responsibilityto implement and enforce such requirements. 2.
However, IFAC believes that the identity of the accountancy
profession ischaracterized worldwide by its endeavor to achieve a
number of commonobjectives and by its observance of certain
fundamental principles for thatpurpose. 3. IFAC, therefore,
recognizing the responsibilities of the accountancyprofession as
such, and considering its own role to be that of providingguidance,
encouraging continuity of efforts, and promoting harmonization,has
deemed it essential to establish an international Code of Ethics
forProfessional Accountants to be the basis on which the ethical
requirements(code of ethics, detailed rules, guidelines, standards
of conduct, etc.) forprofessional accountants* in each country
should be founded. 4. This international Code is intended to serve
as a model on which to baseETHICSnational ethical guidance. It sets
standards of conduct for professionalaccountants and states the
fundamental principles that should be observedby professional
accountants in order to achieve common objectives. Theaccountancy
profession throughout the world operates in an environmentwith
different cultures and regulatory requirements. The basic intent of
theCode, however, should always be respected. It is also
acknowledged that, inthose instances where a national requirement
is in conflict with a provisionin the Code, the national
requirement would prevail. For those countries thatwish to adopt
the Code as their own national Code, IFAC has developedwording
which may be used to indicate the authority and applicability in
thecountry concerned. The wording is contained in the IFAC
Statement ofPolicy of Council** Preface to Ethical Requirements of
(Name of MemberBody).Section 8 of this Code establishes a
conceptual framework forindependence* requirements for assurance
engagements* that is theinternational standard on which national
standards should be based.Accordingly, no member body or firm* is
allowed to apply less stringentstandards than those stated in that
section. However, if member bodies orfirms are prohibited from
complying with certain parts of Section 8 by lawor regulation, they
should comply with all other parts of that section.* See
Definitions.** Effective May 2000, the IFAC Council was renamed the
IFAC Board. 19ETHICS 22. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTS 5. Further, the Code is established on the basis that
unless a limitation isspecifically stated, the objectives and
fundamental principles are equallyvalid for all professional
accountants, whether they be in public practice,*industry,
commerce, the public sector or education. 6. A profession is
distinguished by certain characteristics including:Mastery of a
particular intellectual skill, acquired by training and
education;1Adherence by its members to a common code of values and
conduct established by its administrating body, including
maintaining an outlook which is essentially objective;
andAcceptance of a duty to society as a whole (usually in return
for restrictions in use of a title or in the granting of a
qualification). 7. Members duty to their profession and to society
may at times seem toconflict with their immediate self interest or
their duty of loyalty to theiremployer. 8. Against this background
it is beholden on member bodies to lay downethical requirements for
their members to ensure the highest quality ofperformance and to
maintain public confidence in the profession.The Public Interest 9.
A distinguishing mark of a profession is acceptance of its
responsibility tothe public. The accountancy professions public
consists of clients, creditgrantors, governments, employers,
employees, investors, the business andfinancial community, and
others who rely on the objectivity* and integrityof professional
accountants to maintain the orderly functioning ofcommerce. This
reliance imposes a public interest responsibility on theaccountancy
profession. The public interest is defined as the collective
well-being of the community of people and institutions the
professionalaccountant serves. 10.A professional accountants
responsibility is not exclusively to satisfy theneeds of an
individual client or employer. The standards of the
accountancyprofession are heavily determined by the public
interest, for example:1 For details of the education requirements
recommended and prescribed by IFAC, reference should bemade to the
statements developed by the Accounting Education Standards Board,
includingInternational Education Standards, International Education
Guidelines and International EducationPapers.* See
Definitions.ETHICS20 23. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTS Independent auditors help to maintain the integrity and
efficiency of the financial statements presented to financial
institutions in partial support for loans and to stockholders for
obtaining capital; Financial executives serve in various financial
management capacities in organizations and contribute to the
efficient and effective use of the organizations resources;
Internal auditors provide assurance about a sound internal control
system which enhances the reliability of the external financial
information of the employer; Tax experts help to establish
confidence and efficiency in, and the fair application of, the tax
system; and Management consultants have a responsibility toward the
public interest in advocating sound management decision making. 11.
Professional accountants have an important role in society.
Investors, creditors, employers and other sectors of the business
community, as well as the government and the public at large rely
on professional accountants for sound financial accounting and
reporting, effective financial management and competent advice on a
variety of business and taxation matters. The ETHICS attitude and
behavior of professional accountants in providing such services
have an impact on the economic well-being of their community and
country. 12. Professional accountants can remain in this
advantageous position only by continuing to provide the public with
these unique services at a level which demonstrates that the public
confidence is firmly founded. It is in the best interest of the
worldwide accountancy profession to make known to users of the
services provided by professional accountants that they are
executed at the highest level of performance and in accordance with
ethical requirements that strive to ensure such performance. 13. In
formulating their national code of ethics, member bodies should
therefore consider the public service and user expectations of the
ethical standards of professional accountants and take their views
into account. By doing so, any existing expectation gap between the
standards expected and those prescribed can be addressed or
explained.Objectives 14. The Code recognizes that the objectives of
the accountancy profession are to work to the highest standards of
professionalism, to attain the highest levels of performance and
generally to meet the public interest requirement set out above.
These objectives require four basic needs to be met:21ETHICS 24.
CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSCredibility In the whole
of society there is a need for credibility in information and
information systems.Professionalism There is a need for individuals
who can be clearly identified by clients, employers and other
interested parties as professional persons in the accountancy
field.Quality of Services There is a need for assurance that all
services obtained from a professional accountant are carried out to
the highest standards of performance.Confidence Users of the
services of professional accountants should be able to feel
confident that there exists a framework of professional ethics
which governs the provision of those services.Fundamental
Principles 15.In order to achieve the objectives of the accountancy
profession,professional accountants have to observe a number of
prerequisites orfundamental principles. 16.The fundamental
principles are:Integrity A professional accountant should be
straightforward and honest in performing professional
services.*Objectivity A professional accountant should be fair and
should not allow prejudice or bias, conflict of interest or
influence of others to override objectivity.Professional Competence
and Due Care A professional accountant should perform professional
services with due care, competence and diligence and has a
continuing duty to maintain professional knowledge and skill at a
level required to ensure that a client or employer receives the
advantage of competent* See Definitions.ETHICS 22 25. CODE OF
ETHICS FOR PROFESSIONAL ACCOUNTANTS professional service based on
up-to-date developments in practice, legislation and
techniques.Confidentiality A professional accountant should respect
the confidentiality of information acquired during the course of
performing professional services and should not use or disclose any
such information without proper and specific authority or unless
there is a legal or professional right or duty to
disclose.Professional Behavior A professional accountant should act
in a manner consistent with the good reputation of the profession
and refrain from any conduct which might bring discredit to the
profession. The obligation to refrain from any conduct which might
bring discredit to the profession requires IFAC member bodies to
consider, when developing ethical requirements, the
responsibilities of a professional accountant to clients, third
parties, other members of the accountancy profession, staff,
employers, and the general public. ETHICSTechnical Standards A
professional accountant should carry out professional services in
accordance with the relevant technical and professional standards.
Professional accountants have a duty to carry out with care and
skill, the instructions of the client or employer insofar as they
are compatible with the requirements of integrity, objectivity and,
in the case of professional accountants in public practice,*
independence (see Section 8 below). In addition, they should
conform with the technical and professional standards promulgated
by: IFAC (e.g., International Standards on Auditing); International
Accounting Standards Board; The members professional body or other
regulatory body; and Relevant legislation.The Code 17.The
objectives as well as the fundamental principles are of a general
natureand are not intended to be used to solve a professional
accountants ethicalproblems in a specific case. However, the Code
provides some guidance asto the application in practice of the
objectives and the fundamental* See Definitions. 23 ETHICS 26. CODE
OF ETHICS FOR PROFESSIONAL ACCOUNTANTSprinciples with regard to a
number of typical situations occurring in theaccountancy
profession. 18.The Code set out below is divided into three parts:
Part A applies to all professional accountants unless
otherwisespecified. Part B applies only to those professional
accountants in public practice. Part C applies to employed
professional accountants, and may alsoapply, in appropriate
circumstances, to accountants employed in publicpractice. See
Definitions.ETHICS24 27. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTSPART AAPPLICABLE TO ALL PROFESSIONALACCOUNTANTSSECTION
1Integrity and Objectivity 1.1 Integrity implies not merely honesty
but fair dealing and truthfulness. The principle of objectivity
imposes the obligation on all professional accountants to be fair,
intellectually honest and free of conflicts of interest. 1.2
Professional accountants serve in many different capacities and
should demonstrate their objectivity in varying circumstances.
Professional accountants in public practice undertake assurance
engagements, and render tax and other management advisory services.
Other professional accountants prepare financial statements as a
subordinate of others, perform internal auditing services, and
serve in financial management capacities in industry, commerce, the
public sector and education. They also educate and train those who
aspire to admission into the profession. Regardless of service or
capacity, professional accountants should protect the integrity of
their professional services, and maintain objectivity in their
judgment.ETHICS 1.3 In selecting the situations and practices to be
specifically dealt within ethics requirements relating to
objectivity, adequate consideration should be given to the
following factors: (a)Professional accountants are exposed to
situations which involve thepossibility of pressures being exerted
on them. These pressures mayimpair their objectivity. (b)It is
impracticable to define and prescribe all such situations
wherethese possible pressures exist. Reasonableness should prevail
inestablishing standards for identifying relationships that are
likely to,or appear to, impair a professional accountants
objectivity. (c)Relationships should be avoided which allow
prejudice, bias orinfluences of others to override objectivity.
(d)Professional accountants have an obligation to ensure that
personnelengaged on professional services adhere to the principle
ofobjectivity. (e)Professional accountants should neither accept
nor offer gifts orentertainment which might reasonably be believed
to have asignificant and improper influence on their professional
judgment orthose with whom they deal. What constitutes an excessive
gift oroffer of entertainment varies from country to country
butprofessional accountants should avoid circumstances which
wouldbring their professional standing into disrepute. 25ETHICS 28.
CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION 2Resolution of
Ethical Conflicts2.1 From time to time professional accountants
encounter situations which giverise to conflicts of interest. Such
conflicts may arise in a wide variety ofways, ranging from the
relatively trivial dilemma to the extreme case offraud and similar
illegal activities. It is not possible to attempt to itemize
acomprehensive check list of potential cases where conflicts of
interest mightoccur. The professional accountant should be
constantly conscious of and bealert to factors which give rise to
conflicts of interest. It should be noted thatan honest difference
of opinion between a professional accountant andanother party is
not in itself an ethical issue. However, the facts andcircumstances
of each case need investigation by the parties concerned.2.2 It is
recognized, however, that there can be particular factors which
occurwhen the responsibilities of a professional accountant may
conflict withinternal or external demands of one type or another.
Hence:There may be the danger of pressure from an overbearing
supervisor, manager, director* or partner; or when there are family
or personal relationships which can give rise to the possibility of
pressures being exerted upon them. Indeed, relationships or
interests which could adversely influence, impair or threaten a
professional accountants integrity should be discouraged.A
professional accountant may be asked to act contrary to technical
and/or professional standards.A question of divided loyalty as
between the professional accountants superior and the required
professional standards of conduct could occur.Conflict could arise
when misleading information is published which may be to the
advantage of the employer or client and which may or may not
benefit the professional accountant as a result of such
publication.2.3 In applying standards of ethical conduct
professional accountants mayencounter problems in identifying
unethical behavior or in resolving anethical conflict. When faced
with significant ethical issues, professionalaccountants should
follow the established policies of the employingorganization to
seek a resolution of such conflict. If those policies do notresolve
the ethical conflict, the following should be considered:* See
Definitions.ETHICS 26 29. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTS(a) Review the conflict problem with the immediate
superior. If theproblem is not resolved with the immediate superior
and theprofessional accountant determines to go to the next
highermanagerial level, the immediate superior should be notified
of thedecision. If it appears that the superior is involved in the
conflictproblem, the professional accountant should raise the issue
with thenext higher level of management. When the immediate
superior isthe Chief Executive Officer (or equivalent) the next
higher reviewinglevel may be the Executive Committee, Board of
Directors, Non-Executive Directors, Trustees, Partners Management
Committee orShareholders.(b) Seek counseling and advice on a
confidential basis with anindependent advisor or the applicable
professional accountancy bodyto obtain an understanding of possible
courses of action.(c) If the ethical conflict still exists after
fully exhausting all levels ofinternal review, the professional
accountant as a last resort may haveno other recourse on
significant matters (e.g., fraud) than to resignand to submit an
information memorandum to an appropriaterepresentative of that
organization.ETHICS2.4 Furthermore, in some countries local laws,
regulations or professionalstandards may require certain serious
matters to be reported to an externalbody such as an enforcement or
supervisory authority.2.5 Any professional accountant in a senior
position should endeavor to ensurethat policies are established
within his or her employing organization toseek resolution of
conflicts.2.6 Member bodies are urged to ensure that confidential
counseling and adviceis available to members who experience ethical
conflicts. 27ETHICS 30. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTSSECTION 3Professional Competence 3.1 Professional
accountants should not portray themselves as having expertise or
experience they do not possess. 3.2 Professional competence may be
divided into two separate phases: (a) Attainment of professional
competence The attainment of professional competence requires
initially a high standard of general education followed by specific
education, training and examination in professionally relevant
subjects, and whether prescribed or not, a period of work
experience. This should be the normal pattern of development for a
professional accountant. (b) Maintenance of professional competence
(i)The maintenance of professional competence requires acontinuing
awareness of developments in the accountancyprofession including
relevant national and internationalpronouncements on accounting,
auditing and other relevantregulations and statutory requirements.
(ii) A professional accountant should adopt a program designed
toensure quality control in the performance of professionalservices
consistent with appropriate national and
internationalpronouncements.ETHICS 28 31. CODE OF ETHICS FOR
PROFESSIONAL ACCOUNTANTSSECTION 4Confidentiality 4.1 Professional
accountants have an obligation to respect the confidentiality of
information about a clients or employers affairs acquired in the
course of professional services. The duty of confidentiality
continues even after the end of the relationship between the
professional accountant and the client or employer. 4.2
Confidentiality should always be observed by a professional
accountant unless specific authority has been given to disclose
information or there is a legal or professional duty to disclose.
4.3 Professional accountants have an obligation to ensure that
staff under their control and persons from whom advice and
assistance is obtained respect the principle of confidentiality.
4.4 Confidentiality is not only a matter of disclosure of
information. It also requires that a professional accountant
acquiring information in the course of performing professional
services does neither use nor appear to use that information for
personal advantage or for the advantage of a third party.ETHICS 4.5
A professional accountant has access to much confidential
information about a clients or employers affairs not otherwise
disclosed to the public. Therefore, the professional accountant
should be relied upon not to make unauthorized disclosures to other
persons. This does not apply to disclosure of such information in
order properly to discharge the professional accountants
responsibility according to the professions standards. 4.6 It is in
the interest of the public and the profession that the professions
standards relating to confidentiality be defined and guidance given
on the nature and extent of the duty of confidentiality and the
circumstances in which disclosure of information acquired during
the course of providing professional services shall be permitted or
required. 4.7 It should be recognized, however, that
confidentiality of information is part of statute or common law and
therefore detailed ethical requirements in respect thereof will
depend on the law of the country of each member body. 4.8 The
following are examples of the points which should be considered in
determining whether confidential information may be disclosed: (a)
When disclosure is authorized. When authorization to disclose is
given by the client or the employer the interests of all the
parties including those third parties whose interests might be
affected should be considered.29 ETHICS 32. CODE OF ETHICS FOR
PROFESSIONAL ACCOUNTANTS (b) When disclosure is required by law.
Examples of when a professional accountant is required by law to
disclose confidential information are: (i) To produce documents or
to give evidence in the course of legal proceedings; and (ii)To
disclose to the appropriate public authorities infringements of the
law which come to light. (c) When there is a professional duty or
right to disclose: (i) To comply with technical standards and
ethics requirements; such disclosure is not contrary to this
section; (ii)To protect the professional interests of a
professional accountant in legal proceedings; (iii) To comply with
the quality (or peer) review of a member body or professional body;
and (iv)To respond to an inquiry or investigation by a member body
or regulatory body. 4.9 When the professional accountant has
determined that confidential information can be disclosed, the
following points should be considered: (a) Whether or not all the
relevant facts are known and substantiated, to the extent it is
practicable to do so; when the situation involves unsubstantiated
fact or opinion, professional judgment should be used in
determining the type of disclosure to be made, if any; (b) What
type of communication is expected and the addressee; in particular,
the professional accountant should be satisfied that the parties to
whom the communication is addressed are appropriate recipients and
have the responsibility to act on it; and (c) Whether or not the
professional accountant would incur any legal liability having made
a communication and the consequences thereof. In all such
situations, the professional accountants should consider the need
to consult legal counsel and/or the professional organization(s)
concerned.ETHICS30 33. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTSSECTION 5Tax Practice 5.1 A professional accountant
rendering professional tax services is entitled to put forward the
best position in favor of a client, or an employer, provided the
service is rendered with professional competence, does not in any
way impair integrity and objectivity, and is in the opinion of the
professional accountant consistent with the law. Doubt may be
resolved in favor of the client or the employer if there is
reasonable support for the position. 5.2 A professional accountant
should not hold out to a client or an employer the assurance that
the tax return prepared and the tax advice offered are beyond
challenge. Instead, the professional accountant should ensure that
the client or the employer are aware of the limitations attaching
to tax advice and services so that they do not misinterpret an
expression of opinion as an assertion of fact. 5.3 A professional
accountant who undertakes or assists in the preparation of a tax
return should advise the client or the employer that the
responsibility for the content of the return rests primarily with
the client or employer. The professional accountant should take the
necessary steps to ensure that the ETHICS tax return is properly
prepared on the basis of the information received. 5.4 Tax advice
or opinions of material consequence given to a client or an
employer should be recorded, either in the form of a letter or in a
memorandum for the files. 5.5 A professional accountant should not
be associated with any return or communication in which there is
reason to believe that it: (a) Contains a false or misleading
statement; (b) Contains statements or information furnished
recklessly or without any real knowledge of whether they are true
or false; or (c) Omits or obscures information required to be
submitted and such omission or obscurity would mislead the revenue
authorities. 5.6 A professional accountant may prepare tax returns
involving the use of estimates if such use is generally acceptable
or if it is impractical under the circumstances to obtain exact
data. When estimates are used, they should be presented as such in
a manner so as to avoid the implication of greater accuracy than
exists. The professional accountant should be satisfied that
estimated amounts are reasonable under the circumstances. 5.7 In
preparing a tax return, a professional accountant ordinarily may
rely on information furnished by the client or employer provided
that the information appears reasonable. Although the examination
or review of31ETHICS 34. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTS documents or other evidence in support of the
information is not required, the professional accountant should
encourage, when appropriate, such supporting data to be provided.
In addition, the professional accountant: (a) Should make use of
the clients returns for prior years whenever feasible; (b) Is
required to make reasonable inquiries when the information
presented appears to be incorrect or incomplete; and (c) Is
encouraged to make reference to the books and records of the
business operations. 5.8 When a professional accountant learns of a
material error or omission in a tax return of a prior year (with
which the professional accountant may or may not have been
associated), or of the failure to file a required tax return, the
professional accountant has a responsibility to: (a) Promptly
advise the client or employer of the error or omission and
recommend that disclosure be made to the revenue authorities.
Normally, the professional accountant is not obligated to inform
the revenue authorities, nor may this be done without permission.
(b) If the client or the employer does not correct the error the
professional accountant: (i)Should inform the client or the
employer that it is not possibleto act for them in connection with
that return or other relatedinformation submitted to the
authorities; and (ii) Should consider whether continued association
with the clientor employer in any capacity is consistent with
professionalresponsibilities. (c) If the professional accountant
concludes that a professional relationship with the client or
employer can be continued, all reasonable steps should be taken to
ensure that the error is not repeated in subsequent tax returns.
(d) Professional or statutory requirements in some countries may
also make it necessary for the professional accountant to inform
the revenue authorities that there is no longer any association
with the return or other information involved and that acting for
the client or employer has ceased. In these circumstances, the
professional accountant should advise the client or employer of the
position before informing the authorities and should give no
further information to the authorities without the consent of the
client or employer unless required to do so by law.ETHICS32 35.
CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION 6Cross Border
Activities 6.1 When considering the application of ethical
requirements in cross border activities a number of situations may
arise. Whether a professional accountant is a member of the
profession in one country only or is also a member of the
profession in the country where the services are performed should
not affect the manner of dealing with each situation. 6.2 A
professional accountant qualifying in one country may reside in
another country or may be temporarily visiting that country to
perform professional services. In all circumstances, the
professional accountant should carry out professional services in
accordance with the relevant technical standards and ethical
requirements. The particular technical standards which should be
followed are not dealt within this section. In all other respects,
however, the professional accountant should be guided by the
ethical requirements set out below. 6.3 When a professional
accountant performs services in a country other than the home
country and differences on specific matters exist between ethical
requirements of the two countries the following provisions should
beETHICS applied: (a) When the ethical requirements of the country
in which the services are being performed are less strict than the
IFAC Code of Ethics, then the IFAC Code of Ethics should be
applied. (b) When the ethical requirements of the country in which
services are being performed are stricter than the IFAC Code of
Ethics, then the ethical requirements in the country where services
are being performed should be applied. (c) When the ethical
requirements of the home country are mandatory for services
performed outside that country and are stricter than set out in (a)
and (b) above, then the ethical requirements of the home country
should be applied. (In the case of cross border advertising and
solicitation see also Section 14 paragraph 14.4 and 14.5 below.)33
ETHICS 36. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION
7Publicity*7.1In the marketing and promotion of themselves and
their work, professional accountants should: (a) Not use means
which brings the profession into disrepute; (b) Not make
exaggerated claims for the services they are able to offer, the
qualifications they possess, or experience they have gained; and
(c) Not denigrate the work of other accountants.* See
Definitions.ETHICS34 37. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTSPART BAPPLICABLE TO PROFESSIONALACCOUNTANTS IN PUBLIC
PRACTICESECTION 8Independence8.1 It is in the public interest and,
therefore, required by this Code of Ethics,that members of
assurance teams,* firms and, when applicable, networkfirms* be
independent of assurance clients.*8.2 Assurance engagements are
intended to enhance the credibility ofinformation about a subject
matter by evaluating whether the subject matterconforms in all
material respects with suitable criteria. The InternationalStandard
on Assurance Engagements issued by the International Auditingand
Assurance Standards Board describes the objectives and elements
ofassurance engagements to provide either a high or a moderate
level ofassurance. The International Auditing and Assurance
Standards Board hasalso issued specific standards for certain
assurance engagements. Forexample, International Standards on
Auditing provide specific standards foraudit (high level assurance)
and review (moderate level assurance) ofETHICSfinancial
statements.Paragraphs 8.3 through 8.6 are taken from the
International Standard onAssurance Engagements and describe the
nature of an assuranceengagement. These paragraphs are presented
here only to describe thenature of an assurance engagement. To
obtain a full understanding of theobjectives and elements of an
assurance engagement it is necessary to referto the full text
contained in the International Standard on AssuranceEngagements.8.3
Whether a particular engagement is an assurance engagement will
dependupon whether it exhibits all the following elements:(a)A
three party relationship involving: (i) A professional accountant;
(ii)A responsible party; and (iii) An intended user;(b)A subject
matter;(c)Suitable criteria;(d)An engagement process; and(e)A
conclusion.* See Definitions. 35ETHICS 38. CODE OF ETHICS FOR
PROFESSIONAL ACCOUNTANTS The responsible party and the intended
user will often be from separate organizations but need not be. A
responsible party and an intended user may both be within the same
organization. For example, a governing body may seek assurance
about information provided by a component of that organization. The
relationship between the responsible party and the intended user
needs to be viewed within the context of a specific engagement. 8.4
There is a broad range of engagements to provide a high or moderate
level of assurance. Such engagements may include: Engagements to
report on a broad range of subject matters covering financial and
non-financial information; Attest and direct reporting engagements;
Engagements to report internally and externally; and Engagements in
the private and public sector. 8.5 The subject matter of an
assurance engagement may take many forms, such as the following:
Data (for example, historical or prospective financial information,
statistical information, performance indicators). Systems and
processes (for example, internal controls). Behavior (for example,
corporate governance, compliance with regulation, human resource
practices). 8.6 Not all engagements performed by professional
accountants are assurance engagements. Other engagements frequently
performed by professional accountants that are not assurance
engagements include: Agreed-upon procedures; Compilation of
financial or other information; Preparation of tax returns when no
conclusion is expressed, and tax consulting; Management consulting;
and Other advisory services. 8.7 This section of the Code of Ethics
(this section) provides a framework, built on principles, for
identifying, evaluating and responding to threats to independence.
The framework establishes principles that members of assurance
teams, firms and network firms should use to identify threats to
independence, evaluate the significance of those threats, and, if
the threats are other than clearly insignificant, identify and
apply safeguards to eliminate the threats or reduce them to an
acceptable level. Judgment isETHICS 36 39. CODE OF ETHICS FOR
PROFESSIONAL ACCOUNTANTS needed to determine which safeguards are
to be applied. Some safeguards may eliminate the threat while
others may reduce the threat to an acceptable level. This section
requires members of assurance teams, firms and network firms to
apply the principles to the particular circumstances under
consideration. The examples presented are intended to illustrate
the application of the principles in this section and are not
intended to be, nor should they be interpreted as, an exhaustive
list of all circumstances that may create threats to independence.
Consequently, it is not sufficient for a member of an assurance
team, a firm or a network firm merely to comply with the examples
presented, rather they should apply the principles in this section
to the particular circumstances they face.A Conceptual Approach to
Independence 8.8 Independence requires: (a)Independence of MindThe
state of mind that permits the provision of an opinion withoutbeing
affected by influences that compromise professional
judgment,allowing an individual to act with integrity, and exercise
objectivityand professional skepticism. ETHICS (b)Independence in
AppearanceThe avoidance of facts and circumstances that are so
significant thata reasonable and informed third party, having
knowledge of allrelevant information, including safeguards applied,
would reasonablyconclude a firms, or a member of the assurance
teams, integrity,objectivity or professional skepticism had been
compromised. 8.9 The use of the word independence on its own may
create misunderstandings. Standing alone, the word may lead
observers to suppose that a person exercising professional judgment
ought to be free from all economic, financial and other
relationships. This is impossible, as every member of society has
relationships with others. Therefore, the significance of economic,
financial and other relationships should also be evaluated in the
light of what a reasonable and informed third party having
knowledge of all relevant information would reasonably conclude to
be unacceptable. 8.10 Many different circumstances, or combination
of circumstances, may berelevant and accordingly it is impossible
to define every situation thatcreates threats to independence and
specify the appropriate mitigatingaction that should be taken. In
addition, the nature of assuranceengagements may differ and
consequently different threats may exist,requiring the application
of different safeguards. A conceptual frameworkthat requires firms
and members of assurance teams to identify, evaluate andaddress
threats to independence, rather than merely comply with a set
ofspecific rules which may be arbitrary, is, therefore, in the
public interest.37ETHICS 40. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTS8.11 This section is based on such a conceptual
approach, one that takes into account threats to independence,
accepted safeguards and the public interest. Under this approach,
firms and members of assurance teams have an obligation to identify
and evaluate circumstances and relationships that create threats to
independence and to take appropriate action to eliminate these
threats or to reduce them to an acceptable level by the application
of safeguards. In addition to identifying and evaluating
relationships between the firm, network firms, members of the
assurance team and the assurance client, consideration should be
given to whether relationships between individuals outside of the
assurance team and the assurance client create threats to
independence.8.12 This section provides a framework of principles
that members of assurance teams, firms and network firms should use
to identify threats to independence, evaluate the significance of
those threats, and, if the threats are other than clearly
insignificant, identify and apply safeguards to eliminate the
threats or reduce them to an acceptable level, such that
independence of mind and independence in appearance are not
compromised.8.13 The principles in this section apply to all
assurance engagements. The nature of the threats to independence
and the applicable safeguards necessary to eliminate the threats or
reduce them to an acceptable level differ depending on the
characteristics of the individual engagement: whether the assurance
engagement is an audit engagement* or another type of engagement;
and in the case of an assurance engagement that is not an audit
engagement, the purpose, subject matter and intended users of the
report. A firm should, therefore, evaluate the relevant
circumstances, the nature of the assurance engagement and the
threats to independence in deciding whether it is appropriate to
accept or continue an engagement, as well as the nature of the
safeguards required and whether a particular individual should be a
member of the assurance team.8.14 Audit engagements provide
assurance to a wide range of potential users; consequently, in
addition to independence of mind, independence in appearance is of
particular significance. Accordingly, for audit clients,* the
members of the assurance team, the firm and network firms are
required to be independent of the audit client. Similar
considerations in the case of assurance engagements provided to
non-audit assurance clients require the members of the assurance
team and the firm to be independent of the non- audit assurance
client. In the case of these engagements, consideration should be
given to any threats that the firm has reason to believe may be
created by network firm interests and relationships.* See
Definitions.ETHICS 38 41. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTS8.15 In the case of an assurance report to a non-audit
assurance client expressly restricted for use by identified users,
the users of the report are considered to be knowledgeable as to
the purpose, subject matter and limitations of the report through
their participation in establishing the nature and scope of the
firms instructions to deliver the services, including the criteria
by which the subject matter are to be evaluated. This knowledge and
enhanced ability of the firm to communicate about safeguards with
all users of the report increase the effectiveness of safeguards to
independence in appearance. These circumstances may be taken into
account by the firm in evaluating the threats to independence and
considering the applicable safeguards necessary to eliminate the
threats or reduce them to an acceptable level. At a minimum, it
will be necessary to apply the provisions of this section in
evaluating the independence of members of the assurance team and
their immediate and close family. * Further, if the firm had a
material financial interest,* whether direct or indirect, in the
assurance client, the self-interest threat created would be so
significant no safeguard could reduce the threat to an acceptable
level. Limited consideration of any threats created by network firm
interests and relationships may be sufficient.8.16 Accordingly:
ETHICS (a) For assurance engagements provided to an audit client,
the members of the assurance team, the firm and network firms are
required to be independent of the client; (b) For assurance
engagements provided to clients that are not audit clients, when
the report is not expressly restricted for use by identified users,
the members of the assurance team and the firm are required to be
independent of the client; and (c) For assurance engagements
provided to clients that are not audit clients, when the assurance
report is expressly restricted for use by identified users, the
members of the assurance team are required to be independent of the
client. In addition, the firm should not have a material direct or
indirect financial interest* in the client.* See Definitions.39
ETHICS 42. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSThese
independence requirements for assurance engagements are illustrated
asfollows:Type of Assurance EngagementClient Non-audit Non-audit
Audit not restricted userestricted use Audit client Assurance team,
firm and network firmsNon-auditAssurance team and firm Assurance
team andassurancehas no material financialfirmclient interest8.17
The threats and safeguards identified in this section are generally
discussed in the context of interests or relationships between the
firm, network firms, a member of the assurance team and the
assurance client. In the case of a listed audit client, the firm
and any network firms are required to consider the interests and
relationships that involve that clients related entities. Ideally
those entities and the interests and relationships should be
identified in advance. For all other assurance clients, when the
assurance team has reason to believe that a related entity* of such
an assurance client is relevant to the evaluation of the firms
independence of the client, the assurance team should consider that
related entity when evaluating independence and applying
appropriate safeguards.8.18 The evaluation of threats to
independence and subsequent action should be supported by evidence
obtained before accepting the engagement and while it is being
performed. The obligation to make such an evaluation and take
action arises when a firm, a network firm or a member of the
assurance team knows, or could reasonably be expected to know, of
circumstances or relationships that might compromise independence.
There may be occasions when the firm, a network firm or an
individual inadvertently violates this section. If such an
inadvertent violation occurs, it would generally not compromise
independence with respect to an assurance client provided the firm
has appropriate quality control policies and procedures in place to
promote independence and, once discovered, the violation is
corrected promptly and any necessary safeguards are applied.8.19
Throughout this section, reference is made to significant and
clearly insignificant threats in the evaluation of independence. In
considering the significance of any particular matter, qualitative
as well as quantitative* See Definitions.ETHICS40 43. CODE OF
ETHICS FOR PROFESSIONAL ACCOUNTANTSfactors should be taken into
account. A matter should be considered clearlyinsignificant only if
it is deemed to be both trivial and inconsequential.Objective and
Structure of this Section8.20 The objective of this section is to
assist firms and members of assurance teams in:(a) Identifying
threats to independence;(b) Evaluating whether these threats are
clearly insignificant; and(c)In cases when the threats are not
clearly insignificant, identifying and applying appropriate
safeguards to eliminate or reduce the threats to an acceptable
level.In situations when no safeguards are available to reduce the
threat to anacceptable level, the only possible actions are to
eliminate the activities orinterest creating the threat, or to
refuse to accept or continue the assuranceengagement.8.21 This
section outlines the threats to independence (paragraphs 8.28
through 8.33). It then analyzes safeguards capable of eliminating
these threats or reducing them to an acceptable level (paragraphs
8.34 through 8.47). It ETHICS concludes with some examples of how
this conceptual approach to independence is to be applied to
specific circumstances and relationships. The examples discuss
threats to independence that may be created by specific
circumstances and relationships (paragraphs 8.100 onwards).
Professional judgment is used to determine the appropriate
safeguards to eliminate threats to independence or to reduce them
to an acceptable level. In certain examples, the threats to
independence are so significant the only possible actions are to
eliminate the activities or interest creating the threat, or to
refuse to accept or continue the assurance engagement. In other
examples, the threat can be eliminated or reduced to an acceptable
level by the application of safeguards. The examples are not
intended to be all- inclusive.8.22 When threats to independence
that are not clearly insignificant are identified, and the firm
decides to accept or continue the assurance engagement, the
decision should be documented. The documentation should include a
description of the threats identified and the safeguards applied to
eliminate or reduce the threats to an acceptable level.8.23 The
evaluation of the significance of any threats to independence and
the safeguards necessary to reduce any threats to an acceptable
level, takes into account the public interest. Certain entities may
be of significant public interest because, as a result of their
business, their size or their corporate status they have a wide
range of stakeholders. Examples of such entities might include
listed companies, credit institutions, insurance companies,41ETHICS
44. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS and pension funds.
Because of the strong public interest in the financial statements
of listed entities, certain paragraphs in this section deal with
additional matters that are relevant to the audit of listed
entities. Consideration should be given to the application of the
principles set out in this section in relation to the audit of
listed entities to other audit clients that may be of significant
public interest.National Perspectives8.24 This section establishes
a conceptual framework for independence requirements for assurance
engagements that is the international standard on which national
standards should be based. Accordingly, no member body or firm is
allowed to apply less stringent standards than those stated in this
section. When, however, member bodies or firms are prohibited from
complying with certain parts of this section by law or regulation
they should comply with all other parts of this section.8.25
Certain examples in this section indicate how the principles are to
be applied to listed entity* audit engagements. When a member body
chooses not to differentiate between listed entity audit
engagements and other audit engagements, the examples that relate
to listed entity audit engagements should be considered to apply to
all audit engagements.8.26 When a firm conducts an assurance
engagement in accordance with the International Standard on
Assurance Engagements or with specific standards for assurance
engagements issued by the International Auditing and Assurance
Standards Board such as an audit or review of financial statements
in accordance with International Standards on Auditing, the members
of the assurance team and the firm should comply with this section
unless they are prohibited from complying with certain parts of
this section by law or regulation. In such cases, the members of
the assurance team and the firm should comply with all other parts
of this section.8.27 Some countries and cultures may have set out,
either by legislation or common practice, different definitions of
relationships from those used in this section. For example, some
national legislators or regulators may have prescribed lists of
individuals who should be regarded as close family that differ from
the definition contained in this section. Firms, network firms and
members of assurance teams should be aware of those differences and
comply with the more stringent requirements.Threats to
Independence8.28 Independence is potentially affected by
self-interest, self-review, advocacy, familiarity and intimidation
threats.* See Definitions.ETHICS42 45. CODE OF ETHICS FOR
PROFESSIONAL ACCOUNTANTS8.29 Self-Interest Threat occurs when a
firm or a member of the assurance team could benefit from a
financial interest in, or other self-interest conflict with, an
assurance client. Examples of circumstances that may create this
threat include, but are not limited to: A direct financial interest
or material indirect financial interest in an assurance client; A
loan or guarantee to or from an assurance client or any of its
directors or officers;* Undue dependence on total fees from an
assurance client; Concern about the possibility of losing the
engagement; Having a close business relationship with an assurance
client; Potential employment with an assurance client; and
Contingent fees relating to assurance engagements.8.30 Self-Review
Threat occurs when (1) any product or judgment of a previous
assurance engagement or non-assurance engagement needs to be ETHICS
re-evaluated in reaching conclusions on the assurance engagement or
(2) when a member of the assurance team was previously a director
or officer of the assurance client, or was an employee in a
position to exert direct and significant influence over the subject
matter of the assurance engagement. Examples of circumstances that
may create this threat include, but are not limited to: A member of
the assurance team being, or having recently been, a director or
officer of the assurance client; A member of the assurance team
being, or having recently been, an employee of the assurance client
in a position to exert direct and significant influence over the
subject matter of the assurance engagement; Performing services for
an assurance client that directly affect the subject matter of the
assurance engagement; and Preparation of original data used to
generate financial statements or preparation of other records that
are the subject matter of the assurance engagement.* See
Definitions. 43 ETHICS 46. CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTS8.31 Advocacy Threat occurs when a firm, or a member of
the assurance team, promotes, or may be perceived to promote, an
assurance clients position or opinion to the point that objectivity
may, or may be perceived to be, compromised. Such may be the case
if a firm or a member of the assurance team were to subordinate