Certified Practising Accountants

Papua New Guinea

CODE OF ETHICS

STATEMENT OF POLICY OF IFAC BOARD

PREFACE TO ETHICAL REQUIREMENTS OF CERTIFIED PRACTISING
ACCOUNTANTS PAPUA NEW GUINEA

This Preface has been approved by the Council of the CPA PNG for publication.

• CPA PNG as a member of the International Federation of Accountants (IFAC) is

committed to the IFAC’s broad objective of developing and enhancing a coordinated
worldwide accountancy profession with harmonized standards. In working toward this
objective, IFAC develops guidance on ethics for professional accountants. IFAC believes
that issuing such guidance will improve the degree of uniformity of professional ethics
throughout the world.
• As a condition of its membership, the CPA PNG is obliged to support the work of IFAC by
informing its members of every pronouncement developed by IFAC, and to work towards
implementation, when and to the extent possible under local circumstances, of those
pronouncements.
• CPA PNG has determined to adopt the IFAC Code of Ethics for Professional Accountants
as the ethical requirements in Papua New Guinea. The Council of CPA PNG has
prepared an explanatory foreword (attachment A) which sets out the status and effective
date of this decision.
• An explanatory foreword will be issued on the status of each additional IFAC
pronouncement on Ethics that is adopted by the Council of CPA PNG. Where the Council
of CPA PNG deems it necessary, additional ethical requirements may be developed on
matters of relevance in Papua New Guinea not covered by an IFAC pronouncement.
• Members of CPA PNG are expected to comply with the ethical requirements issued by
CPA PNG. Apparent failure to do so may result in an investigation into the member’s
conduct by the Accountants Statutory Committee – prescribed by the Accountants Act
1996 and amendments.
• It is not practical to establish ethical requirements that apply to all situations and
circumstances that professional accountants may encounter. Therefore, professional
accountants should consider the ethical requirements as the basic principles which they
should follow in performing their work.
• The date from which members are expected to observe pronouncements on ethics is set
out in the explanatory foreword.

Code of Ethics of CPA PNG

Explanatory Foreword

The Council of CPA PNG has determined that this Code should be adopted. This Code is
mandatory for all members of CPA PNG to observe in respect of professional services
performed in Papua New Guinea after 19 August 2004.

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 CODE OF ETHICS

STATEMENT OF POLICY OF IFAC BOARD

IMPLEMENTATION AND ENFORCEMENT OF ETHICAL REQUIREMENTS

Introduction

The mission of the International Federation of Accountants (IFAC) as set out in paragraph 2
of its Constitution is ‘the worldwide development and enhancement of an accountancy
profession with harmonized standards, able to provide services of consistently high quality in
the public interest’. In working towards this objective, the IFAC has established committees to
develop and issue pronouncements and technical standards to cover the professional
practice of accounting.
IFAC believes that the issue of such Board pronouncements will help improve the degree of
uniformity of the accountancy profession throughout the world. However, it should be
recognised that in order to develop such pronouncements the legal, social and economic
conditions prevailing in each country will affect the extent and manner in which the
pronouncements are applied. Notwithstanding this condition, it is important that each national
profession have a set of clearly articulated pronouncements and technical standards to cover
the professional practice of accounting.
Once the relevant pronouncements are implemented they should be governed by a policy
which ensures that the ethical requirements (which includes compliance with technical
standards) are followed.
The Board of IFAC wishes to draw the attention of member bodies to the following Statement
of Policy on Implementation and Enforcement of Ethical Requirements.

Implementation of Ethical Requirements

The task of preparing detailed ethical requirements is primarily that of the professional bodies
of each country concerned, even if the responsibility for promulgating those requirements is
assumed, partly or wholly by the legislative body of that country.
The adoption of ethical requirements by member bodies will not necessarily ensure that the
standard of conduct laid down will be maintained; if it is to be effective, provision must be
made by the appropriate bodies in each country for their implementation.
Each member body has the responsibility to promote high standards of professional conduct
and to ensure that ethical requirements are observed and failure to observe them will be
investigated and appropriate action taken.
As noted in paragraph 2.6 of the Code of Ethics for Professional Accountants, member
bodies are encouraged to ensure that counseling and advice is available to help resolve
ethical conflicts. This function is an important part of implementation and can be fulfilled by
such means as providing a service to respond to questions raised by individual members on
interpretations of ethical requirements or by the formation of appropriate committees within
member bodies which would monitor the ethical requirements of those bodies.
Provision of an interpretation/advice/counseling service should offer the following features:

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CODE OF ETHICS

Its purposes and operating procedures should be transparent and widely promoted to the
membership. The operating procedures should provide safeguards such that only reasonable
questions from members are considered and that the questioner is responsible for clearly
setting out the facts and circumstances. The individuals charged with responsibility for
providing the advice must be at a level commensurate with such authority and have sufficient
technical expertise to provide such advice. Inquiries would ordinarily be made on a totally
confidential basis; and results of any interpretation/advice questions could be subject to
publication (on a ‘no-name’ basis) at the general membership as an educational method.
Implementation of ethical requirements will be assisted by the introduction to a program
designed to ensure that individual members are aware of all ethical requirements and the
consequences of non-compliance with those requirements. This information may be
communicated to individual members in such ways as members’ handbooks, technical
releases, professional journals, reports on disciplinary hearings and activities, programs of
continuing professional education, newsletters, financial and business press, and responses
from the appropriate committee to requests for advice.
Most Accountants will respect the ethical requirements to which they are subject without any
necessity for compulsion or sanctions. Nevertheless, cases may occur where such
requirements are flagrantly ignored or where accountants through error, oversight or lack of
understanding, fail to observe them. It is in the interest of the profession and all its members
in any country that the general public should have confidence that failure to observe the
ethical requirements of the profession in that country will be investigated and, where
appropriate, disciplinary action taken.
Members should therefore be prepared to justify any departures from the ethical
requirements. Failure to comply with ethical requirements or the inability to justify departures
therefore may constitute professional misconduct that could give rise to disciplinary action.

Enforcement of Ethical Requirements

The power of disciplinary action may be provided by legislation or by the Rules of CPA PNG.
Disciplinary action may be provided by legislatory agencies other than CPA PNG. Such
regulatory agencies may be jointly or solely responsible for the disciplinary action or provide a
review process over disciplinary action already taken.
Disciplinary action ordinarily arises from such issues as:
Failure to observe the required standard of professional care, skills or competence.
Non-compliance with rules of ethics; and
Discreditable or dishonourable conduct
Disciplinary investigations will ordinarily commence as a result of a complaint. CPA PNG
shall consider all complaints. Investigations may, however, be initiated by CPA PNG or
regulatory agency without a complaint being made. Investigations can be carried out on a
verbal or correspondence basis. Reference should always be made to CPA PNG against
whom the complaint is being made as well as to the complainant. When there is a dispute,
conciliation may be attempted. Setting time limits on the investigatory process may be
difficult, particularly when the circumstances involve other legal processes.

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 CODE OF ETHICS

Arising from the investigatory process, the member body or regulatory agency will decide as
to whether to commence disciplinary proceedings. There may be a right to appeal, within a
set time frame, against the decision.
The disciplinary proceedings will ordinarily be carried out by the disciplinary committee or
similar tribunal. The proceedings should be held in a manner which is consistent with the
legal requirements of Papua New Guinea. This will ordinarily involve legal representation,
taking evidence and keeping records of the proceedings. The case against the defendant
may be presented by a lawyer, a representative of the investigation committee or the
secretariat of CPA PNG.
Sanctions commonly imposed by disciplinary bodies include the following:
Reprimand;
Fine;
Payment of costs;
Withdrawal of practising rights;
Suspension; and
Expulsion from membership.
Other sanctions can include warning, the refund of the fee charged to the client, additional
education and the work to be completed by another member at the disciplined member’s
expense.
Ordinarily there is a right to appeal by both sides within fixed time limits. Such a right of
appeal may be to a body not connected with CPA PNG. Consideration should be given to the
inclusion of non-members in the body of appeal and the appointment of a non-member as the
chairman. The appeal body should review all the evidence considered at the disciplinary
proceedings. Additional evidence may also be called for and taken either orally or in writing.
It may be appropriate for publicity to be given to the disciplinary and appeal proceedings. In
this way, both members and the general public are informed. However, the aspects of
confidentiality and the type of violation have to be considered in deciding the method of
publicity. There may also be a need to communicate the decision to an appropriate regulatory
body or vice versa where the regulatory body has carried out the disciplinary hearing.

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CODE OF ETHICS

CODE OF ETHICS FOR THE PROFESSIONAL ACCOUNTANT

CONTENT

Paragraphs
Definitions
Introduction 1
The Public Interest 9
Objective 14
Fundamental Principles 15
The Code 17

PART A – APPLICABLE TO ALL PROFESSIONAL ACCOUNTANTS

1. Integrity and Objectivity 1.1
2. Resolution of Ethical Conflicts 2.1
3. Professional Competence 3.1
4. Confidentiality 4.1
5. Tax Practice 5.1
6. Cross Border Activities 6.1
7. Publicity 7.1

PART B – APPLICABLE TO PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE

8. Independence for Assurance Engagements 8.1
9. Professional Competence and Responsibilities Regarding the
Use of Non-Accountants 9.1
10. Fees and Commissions 10.1
11. Activities Incompatible with the Practice of Public Accountancy 11.1
12. Clients’ Monies 12.1
13. Relations with Other Professional Accountants in Public Practice 13.1
14. Advertising and Solicitation 14.1

PART C – APPLICABLE TO BE EMPLOYED PROFESSIONAL ACCOUNTANTS

15. Conflict of Loyalties 15.1
16. Support for Professional Colleagues 16.1
17. Professional Competence 17.1
18. Presentation of Information 18.1

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 CODE OF ETHICS

DEFINITIONS

In this Code of Ethics for Professional Accountants the following expressions appear in bold
type when they are first used and have the following meaning assigned to them:
Advertising The communication to the public of information as to the
services or skills provided by professional accountants in public
practice with a view to procuring professional business.
Audit client An entity in respect of which a firm conducts an audit
engagement. When the audit client is a listed entity, audit client
will always include its related entities.
Assurance client An entity in respect of which a firm conducts an assurance
engagement.
Assurance engagement An engagement conducted to provide:
(a) A high level of assurance that the subject matter
conforms in all material respects with identified suitable
criteria; or
(b) A moderate level of assurance that the subject matter is
plausible in the circumstances.
This would include an engagement in accordance with the
International Standard on Assurance Engagements issued by
the International Auditing and Assurance Standards Board or in
accordance 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 of Auditing.
(c) For the purposes of an audit client, all those within a
network firm who can directly influence the outcome of
the audit engagement.
Client accounting Any bank account which is used solely for the banking of
clients’ monies.
Clients monies Any monies – including documents of title to money e.g., bills of
exchange, promissory notes, and documents of title which can
be converted into money e.g., bearer bonds – received by a
professional accountant in public practice to be held or paid out
on the instruction of the person from whom or on behalf of they
are received.
Close family A parent, non-dependent or sibling.
Direct financial interest A financial interest
Owned directly by and under the control of an individual or
entity (including those managed on a discretionary basis by to
others); or
Beneficially owned through a collective investment vehicle,
estate, trust other intermediary over which the individual or
entity has control.

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Directors and officers Those charged with the governance of an entity, regardless of
their title, which may vary from country to country.
Employed professional A professional accountant employed in industry, commerce,
accountant the public sector or education.
Existing accountant A professional accountant in public practice currently holding an
audit appointment or carrying out accounting, taxation,
consulting or similar professional services for a client.
Financial interest An interest in an entity or other security, debenture, loan or
other debt instrument of an entity, including rights and
obligations to acquire such an interest and derivatives directly
related to such interest.
Firm (a) A sole practitioner, partnership or corporation of
professional accountants.
(b) An entity that controls such parties; and
(c) An entity controlled by such parties.
Immediate family A spouse (equivalent) or dependent.
Independence (a) Independence of mind – the state of mind that permits
the provision of an opinion without being affected by
influences that comprise professional judgment,
allowing an individual to act with integrity, objectivity and
professional skepticism; and.
(b) Independence appearance – the avoidance of facts and
circumstances that are so significant a reasonable and
informed third party, having knowledge of all relevant
information, including any safeguards applied, would
reasonably include a firm’s, or a member of the
assurance team’s integrity, objectivity or professional
skepticism had been compromised.
Indirect financial interest A financial interest beneficially owned through a collective
investment vehicle, estate, trust or other intermediary over
which an individual or entity has no control.
Lead engagement partner In connection with a audit, the partner responsible for signing
the report on the consolidated financial statements of the audit
client, and, where relevant, the partner responsible for signing
the report in respect of any entity whose financial statements
form part of the consolidated financial statements and on which
a separate stand alone report is issued. When no consolidated
financial statements are prepared, the lead engagement partner
would be the partner responsible for signing the report on the
financial statements.
Listed identity An entity whose shares, stock or debt are quoted or listed on
recognised stock exchange or other equivalent body.
Network firm An entity under common control, ownership or management
with the firm or any entity that a reasonable and informed third
party having knowledge of all relevant information would
reasonably conclude as being part of the firm national or
internationally.

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 CODE OF ETHICS

Objectivity A combination or impartiality, intellectual honesty and a

freedom from conflicts of interest.
Office Practice A distinct sub-group, whether organized on geographical or
practice lines. A sole practioner, a partnership or a corporation
of professional accountants which offers professional services
to the public.
Professional accountant Those persons, whether they be in public practice, (including a
sole practioner, partnership or corporate body), industry,
commerce, the public sector or education, who are members of
an IFAC member body.
Professional Each partner or person occupying a position similar to that of a
accountant in Public partner, and each employee in a practice providing
Practice professional services to a client irrespective of their functional
classification (e.g., audit, tax or consulting) and professional
accountants in a practice having managerial responsibilities.
This term is also used to refer to a firm of professional
accountants in public practice.
Professional services Any service requiring accountancy or related skills performed
by a professional accountant including accounting, auditing,
taxation, management consultant and financial management
services.
Receiving accountant A professional accountant in public practice to whom the
existing accountant or client of the existing accountant has
referred audit accounting, taxation, consulting or similar
appointments, or who is consulted kin order to meet the needs
of the client.
Related entity An entity that has any of the following relationships with the
client:
(a) An entity that has direct or indirect control over the client
provided the client is material to such entity.
(b) An entity with a direct financial interest in the client
provided that such entity has significant influence over
the client and the interest in the client is material to such
entity.
(c) An entity over which the client has direct or indirect
control;
(d) An entity in which the client, or an entity related to the
client under (c) above, has a direct financial interest that
gives it significant influence over such entity and the
interest is material to the client and its related entity in
(c); and
(e) An entity which is under common control with the client
(hereinafter a “sister entity”) provided the sister entity
and the client are both material to the entity that controls
both the client and sister entity.
Solicitation The approach to a potential client for the purpose of offering
professional services.

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CODE OF ETHICS

IFAC CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS

Introduction

1. The International Federation of Accountants (IFAC) believes that due to national

differences of culture, language, legal and social systems, the task of preparing
detailed ethical requirements is primarily that of the member bodies in each country
concerned and that they also have the responsibility to implement and enforce such
requirements.
2. However, IFAC believes that the identity of the accountancy profession is
characterized worldwide by its endeavor to achieve a number of common objectives
and by its observance of certain fundamental principles for that purpose.
3. IFAC, therefore, recognizing the responsibilities of the accountancy profession as
such, and considering its own role to be that of providing guidance, encouraging
continuity of efforts, and promoting harmonization, has deemed it essential to
establish an international Code of Ethics for Professional Accountants to be the basis
on which the ethical requirements (code of ethics, detailed rules, guidelines,
standards of conduct, etc.) for professional accountants* in each country should be
founded.
* See definitions.

4. This international Code is intended to serve as a model on which to base national

ethical guidance. It sets standards of conduct for professional accountants and states
the fundamental principles that should be observed by professional accountants in
order to achieve common objectives. The accountancy profession throughout the
world operates in an environment with different cultures and regulatory requirements.
The basic intent of the Code, however, should always be respected. It is also
acknowledged that, in those instances where a national requirement is in conflict with
a provision in the Code, the national requirement would prevail. For those countries
that wish to adopt the Code as their own national Code, IFAC has developed wording
which may be used to indicate the authority and applicability in the country concerned.
The wording is contained in the IFAC Statement of Policy of Council** Preface to
Ethical Requirements of (Name of Member Body).
Section 8 of this Code 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 that section. However, if
member bodies or firms are prohibited from complying with certain parts of Section 8
by law or regulation, they should comply with all other parts of that section.
See definitions.

* Effective May 2000, the IFAC Council was renamed the IFAC Board.*

5. Further, the Code is established on the basis that unless a limitation is specifically
stated, the objectives and fundamental principles are equally valid for all professional
accountants, whether they be in public practice,* industry, commerce, the public
sector or education.
* See definitions.

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6. A profession is distinguished by certain characteristics including:

Mastery of a particular intellectual skill, acquired by training and education;
For details of the education requirements recommended by IFAC, reference should
be made to the International Education Guidelines prepared by the Education
Committee of IFAC.
Adherence by its members to a common code of values and conduct established by
its administrating body, including maintaining an outlook which is essentially objective;
and
Acceptance 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 to conflict with
their immediate self interest or their duty of loyalty to their employer.
8. Against this background it is beholden on member bodies to lay down ethical
requirements for their members to ensure the highest quality of performance and to
maintain public confidence in the profession.

The Public Interest

9. A distinguishing mark of a profession is acceptance of its responsibility to the public.
The accountancy profession’s public consists of clients, credit grantors, governments,
employers, employees, investors, the business and financial community, and others
who rely on the objectivity* and integrity of professional accountants to maintain the
orderly functioning of commerce. This reliance imposes a public interest responsibility
on the accountancy profession. The public interest is defined as the collective well
being of the community of people and institutions the professional accountant serves.
* See definitions.

10. A professional accountant’s responsibility is not exclusively to satisfy the needs of an

individual client or employer. The standards of the accountancy profession are heavily
determined by the public interest, for example:
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 organization’s
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 attitude and behavior of professional accountants
in providing such services have an impact on the economic well being of their
community and country.

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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:
Credibility
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 or fundamental principles.
16. The fundamental principles are:
Integrity
A professional accountant should be straightforward and honest in performing
professional services.*
* See definitions.

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

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advantage of competent 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.
Technical 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:
* See definitions.

IFAC (e.g., International Standards on Auditing);

International Accounting Standards Committee;
The member’s professional body or other regulatory body; and
Relevant legislation.

The Code
17. The objectives as well as the fundamental principles are of a general nature and are
not intended to be used to solve a professional accountant’s ethical problems in a
specific case. However, the Code provides some guidance as to the application in
practice of the objectives and the fundamental principles with regard to a number of
typical situations occurring in the accountancy profession.
18. The Code set out below is divided into three parts:
Part A applies to all professional accountants unless otherwise specified.
Part B applies only to those professional accountants in public practice.
Part C applies to employed professional accountants,* and may also apply, in
appropriate circumstances, to accountants employed in public practice.
* See definitions.

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PART A - APPLICABLE TO ALL PROFESSIONAL ACCOUNTANTS

SECTION 1

Integrity 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.
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 the
possibility of pressures being exerted on them. These pressures may impair
their objectivity.
(b) It is impracticable to define and prescribe all such situations where these
possible pressures exist. Reasonableness should prevail in establishing
standards for identifying relationships that are likely to, or appear to, impair a
professional accountant’s objectivity.
(c) Relationships should be avoided which allow prejudice, bias or influences of
others to override objectivity.
(d) Professional accountants have an obligation to ensure that personnel engaged
on professional services adhere to the principle of objectivity.
(e) Professional accountants should neither accept nor offer gifts or entertainment
which might reasonably be believed to have a significant and improper
influence on their professional judgment or those with whom they deal. What
constitutes an excessive gift or offer of entertainment varies from country to
country but professional accountants should avoid circumstances which would
bring their professional standing into disrepute.

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SECTION 2

Resolution of Ethical Conflicts

2.1 From time to time professional accountants encounter situations which give rise to
conflicts of interest. Such conflicts may arise in a wide variety of ways, ranging from
the relatively trivial dilemma to the extreme case of fraud and similar illegal activities.
It is not possible to attempt to itemize a comprehensive checklist of potential cases
where conflicts of interest might occur. The professional accountant should be
constantly conscious of and be alert to factors which give rise to conflicts of interest. It
should be noted that an honest difference of opinion between a professional
accountant and another party is not in itself an ethical issue. However, the facts and
circumstances of each case need investigation by the parties concerned.
2.2 It is recognized, however, that there can be particular factors which occur when the
responsibilities of a professional accountant may conflict with internal 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 accountant’s integrity should be discouraged.
* See definitions.

A professional accountant may be asked to act contrary to technical and/or

professional standards.
A question of divided loyalty as between the professional accountant’s 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 may encounter
problems in identifying unethical behavior or in resolving an ethical conflict. When
faced with significant ethical issues, professional accountants should follow the
established policies of the employing organization to seek a resolution of such
conflict. If those policies do not resolve the ethical conflict, the following should be
considered:
Review the conflict problem with the immediate superior. If the problem is not
resolved with the immediate superior and the professional accountant determines
to go to the next higher managerial level, the immediate superior should be
notified of the decision. If it appears that the superior is involved in the conflict
problem, the professional accountant should raise the issue with the next higher
level of management. When the immediate superior is the Chief Executive Officer
(or equivalent) the next higher reviewing level may be the Executive Committee,
Board of Directors, Non-Executive Directors, Trustees, Partners’ Management
Committee or Shareholders.
Seek counseling and advice on a confidential basis with an independent advisor
or the applicable professional accountancy body to obtain an understanding of
possible courses of action.

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If the ethical conflict still exists after fully exhausting all levels of internal review,
the professional accountant as a last resort may have no other recourse on
significant matters (e.g., fraud) than to resign and to submit an information
memorandum to an appropriate representative of that organization.
2.4 Furthermore, in some countries local laws, regulations or professional standards may
require certain serious matters to be reported to an external body such as an
enforcement or supervisory authority.
2.5 Any professional accountant in a senior position should endeavor to ensure that
policies are established within his or her employing organization to seek resolution of
conflicts.
2.6 Member bodies are urged to ensure that confidential counseling and advice is
available to members who experience ethical conflicts.

SECTION 3

Professional 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 a continuing
awareness of developments in the accountancy profession including
relevant national and international pronouncements on accounting,
auditing and other relevant regulations and statutory requirements.
(ii) A professional accountant should adopt a program designed to ensure
quality control in the performance of professional services consistent
with appropriate national and international pronouncements.

SECTION 4

Confidentiality

4.1 Professional accountants have an obligation to respect the confidentiality of

information about a client’s or employer’s 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.

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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.
4.5 A professional accountant has access to much confidential information about a
client’s or employer’s 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 accountant’s responsibility according to the
profession’s standards.
4.6 It is in the interest of the public and the profession that the profession’s 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.
(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:
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

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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
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.

SECTION 5

Tax 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 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 of documents or other evidence in support of the

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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 client’s 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 possible to act for
them in connection with that return or other related information
submitted to the authorities; and,
(ii) Should consider whether continued association with the client or
employer in any capacity is consistent with professional
responsibilities.
(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.

SECTION 6

Cross 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

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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 be 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.)

SECTION 7

Publicity*
* See definitions.

7.1 In 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.

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PART B – APPLICABLE TO PROFESSIONAL ACCOUNTANTS IN

PUBLIC PRACTICE

SECTION 8 (revised)

Independence

8.1 It is in the public interest and, therefore, required by this Code of Ethics, that members
of assurance teams,* firms and, when applicable, network firms* be independent of
assurance clients.*
* See definitions.

8.2 Assurance engagements are intended to enhance the credibility of information about
a subject matter by evaluating whether the subject matter conforms in all material
respects with suitable criteria. The International Standard on Assurance Engagements
issued by the International Auditing and Assurance Standards Board describes the
objectives and elements of assurance engagements to provide either a high or a
moderate level of assurance. The International Auditing and Assurance Standards
Board has also issued specific standards for certain assurance engagements. For
example, International Standards on Auditing provide specific standards for audit
(high level assurance) and review (moderate level assurance) of financial statements.
Paragraphs 8.3 through 8.6 are taken from the International Standard on Assurance
Engagements and describe the nature of an assurance engagement. These
paragraphs are presented here only to describe the nature of an assurance
engagement. To obtain a full understanding of the objectives and elements of an
assurance engagement it is necessary to refer to the full text contained in the
International Standards on Assurance Engagements.
8.3 Whether a particular engagement is an assurance engagement will depend upon
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.
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.

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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); or
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 is 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.

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A Conceptual Approach to Independence

8.8 Independence requires:

(a) Independence of mind:
The state of mind that permits the provision of an opinion without being
affected by influences that compromise professional judgment, allowing an
individual to act with integrity, and exercise objectivity and professional
skepticism.
(b) Independence in appearance:
The avoidance of facts and circumstances that are so significant that a
reasonable and informed third party, having knowledge of all relevant
information, including safeguards applied, would reasonably conclude a firm’s,
or a member of the assurance team’s, 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 be relevant and
accordingly it is impossible to define every situation that creates threats to
independence and specify the appropriate mitigating action that should be taken. In
addition, the nature of assurance engagements may differ and consequently different
threats may exist, requiring the application of different safeguards. A conceptual
framework that requires firms and members of assurance teams to identify, evaluate
and address threats to independence, rather than merely comply with a set of specific
rules which may be arbitrary, is, therefore, in the public interest.
8.11 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.

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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.
* See definitions.

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.

8.15 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 firm’s 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.
* See definitions.

8.16 Accordingly:
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;
For assurance engagements provided to clients that are not audit clients,
when the report is not expressly restricted for use by identified users, the

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members of the assurance team and the firm are required to be independent
of the client; and
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.

These independence requirements for assurance engagements are illustrated as

follows:
Type of Assurance Engagement

Audit Non-Audit not Non-Audit

restricted use restricted use

Client Assurance Team, firm and network firms

Audit Client Assurance Teams Assurance Team
Non-Audit Assurance Assurance Team and firm and Firm has no material financial
Client interest

8.17 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 client’s 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 firm’s independence of the client, the
assurance team should consider that related entity when evaluating independence
and applying appropriate safeguards.
* See definitions.

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 factors should be taken into
account. A matter should be considered clearly insignificant only if it is deemed to be
both trivial and inconsequential.

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Objective and Structure of this Section

8.20 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 an acceptable
level, the only possible actions are to eliminate the activities or interest creating the
threat, or to refuse to accept or continue the assurance engagement.
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 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, 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 Perspectives

8.24 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

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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.
* See definitions.

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 Independence

8.28 Independence is potentially affected by self-interest, self-review, advocacy, familiarity

and intimidation threats.
8.29 "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) A direct financial interest or material indirect financial interest in an assurance
client;
(b) A loan or guarantee to or from an assurance client or any of its directors or
officers;*
(c) Undue dependence on total fees from an assurance client;
(d) Concern about the possibility of losing the engagement;
(e) Having a close business relationship with an assurance client;
(f) Potential employment with an assurance client; and
(g) Contingent fees relating to assurance engagements.
* See definitions.

8.30 "Self-Review Threat" occurs when (1) any product or judgment of a previous
assurance engagement or non-assurance engagement needs to be re-evaluated in

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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) A member of the assurance team being, or having recently been, a director or
officer of the assurance client;
(b) 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;
(c) Performing services for an assurance client that directly affect the subject
matter of the assurance engagement; and
(d) Preparation of original data used to generate financial statements or
preparation of other records that are the subject matter of the assurance
engagement.
8.31 "Advocacy Threat" occurs when a firm, or a member of the assurance team,
promotes, or may be perceived to promote, an assurance client’s 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 their
judgment to that of the client.
Examples of circumstances that may create this threat include, but are not limited to:
(a) Dealing in, or being a promoter of, shares or other securities in an assurance
client; and
(b) Acting as an advocate on behalf of an assurance client in litigation or in
resolving disputes with third parties.
8.32 "Familiarity Threat" occurs when, by virtue of a close relationship with an assurance
client, its directors, officers or employees, a firm or a member of the assurance team
becomes too sympathetic to the client’s interests.
Examples of circumstances that may create this threat include, but are not limited to:
(a) A member of the assurance team having an immediate family* member or
close family member who is a director or officer of the assurance client;
(b) A member of the assurance team having an immediate family member or
close family member who, as an employee of the assurance client, is in a
position to exert direct and significant influence over the subject matter of the
assurance engagement;
(c) A former partner of the firm being a director, officer of the assurance client or
an employee in a position to exert direct and significant influence over the
subject matter of the assurance engagement;
(d) Long association of a senior member of the assurance team with the
assurance client; and
(e) Acceptance of gifts or hospitality, unless the value is clearly insignificant, from
the assurance client, its directors, officers or employees.
* See definitions.

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8.33 "Intimidation Threat" occurs when a member of the assurance team may be deterred
from acting objectively and exercising professional skepticism by threats, actual or
perceived, from the directors, officers or employees of an assurance client.
Examples of circumstances that may create this threat include, but are not limited to:
(a) Threat of replacement over a disagreement with the application of an
accounting principle; and
(b) Pressure to reduce inappropriately the extent of work performed in order to
reduce fees.

Safeguards

8.34 The firm and members of the assurance team have a responsibility to remain
independent by taking into account the context in which they practice, the threats to
independence and the safeguards available to eliminate the threats or reduce them to
an acceptable level.
8.35 When threats are identified, other than those that are clearly insignificant, appropriate
safeguards should be identified and applied to eliminate the threats or reduce them to
an acceptable level. This decision should be documented. The nature of the
safeguards to be applied will vary depending upon the circumstances. Consideration
should always be given to what a reasonable and informed third party having
knowledge of all relevant information, including safeguards applied, would reasonably
conclude to be unacceptable. The consideration will be affected by matters such as
the significance of the threat, the nature of the assurance engagement, the intended
users of the assurance report and the structure of the firm.
8.36 Safeguards fall into three broad categories:
(a) Safeguards created by the profession, legislation or regulation;
(b) Safeguards within the assurance client; and
(c) Safeguards within the firm’s own systems and procedures.
The firm and the members of the assurance team should select appropriate
safeguards to eliminate or reduce threats to independence, other than those that are
clearly insignificant, to an acceptable level.
8.37 Safeguards created by the profession, legislation or regulation, include the following:
(a) Educational, training and experience requirements for entry into the
profession;
(b) Continuing education requirements;
(c) Professional standards and monitoring and disciplinary processes;
(d) External review of a firm’s quality control system; and
(e) Legislation governing the independence requirements of the firm.

8.38 Safeguards within the assurance client, include the following:

(a) When the assurance client’s management appoints the firm, persons other
than management ratify or approve the appointment;

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(b) The assurance client has competent employees to make managerial

decisions;
(c) Policies and procedures that emphasize the assurance client’s commitment to
fair financial reporting;
(d) Internal procedures that ensure objective choices in commissioning non-
assurance engagements; and
(e) A corporate governance structure, such as an audit committee, that provides
appropriate oversight and communications regarding a firm’s services.
8.39 Audit committees can have an important corporate governance role when they are
independent of client management and can assist the Board of Directors in satisfying
themselves that a firm is independent in carrying out its audit role. There should be
regular communications between the firm and the audit committee (or other
governance body if there is no audit committee) of listed entities regarding
relationships and other matters that might, in the firm’s opinion, reasonably be thought
to bear on independence.
8.40 Firms should establish policies and procedures relating to independence
communications with audit committees, or others charged with governance. In the
case of the audit of listed entities, the firm should communicate orally and in writing at
least annually, all relationships and other matters between the firm, network firms and
the audit client that in the firm’s professional judgment may reasonably be thought to
bear on independence. Matters to be communicated will vary in each circumstance
and should be decided by the firm, but should generally address the relevant matters
set out in this section.
8.41 Safeguards within the firm’s own systems and procedures may include firm-wide
safeguards such as the following:
(a) Firm leadership that stresses the importance of independence and the
expectation that members of assurance teams will act in the public interest;
(b) Policies and procedures to implement and monitor quality control of assurance
engagements;
(c) Documented independence policies regarding the identification of threats to
independence, the evaluation of the significance of these threats and the
identification and application of safeguards to eliminate or reduce the threats,
other than those that are clearly insignificant, to an acceptable level;
(d) Internal policies and procedures to monitor compliance with firm policies and
procedures as they relate to independence;
(e) Policies and procedures that will enable the identification of interests or
relationships between the firm or members of the assurance team and
assurance clients;
(f) Policies and procedures to monitor and, if necessary, manage the reliance on
revenue received from a single assurance client;
(g) Using different partners and teams with separate reporting lines for the
provision of non-assurance services to an assurance client;
(h) Policies and procedures to prohibit individuals who are not members of the
assurance team from influencing the outcome of the assurance engagement;

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(i) Timely communication of a firm’s policies and procedures, and any changes
thereto, to all partners and professional staff, including appropriate training
and education thereon;
(j) Designating a member of senior management as responsible for overseeing
the adequate functioning of the safeguarding system;
(k) Means of advising partners and professional staff of those assurance clients
and related entities from which they must be independent;
(l) A disciplinary mechanism to promote compliance with policies and
procedures; and
(m) Policies and procedures to empower staff to communicate to senior levels
within the firm any issue of independence and objectivity that concerns them;
this includes informing staff of the procedures open to them.
8.42 Safeguards within the firm’s own systems and procedures may include engagement
specific safeguards such as the following:
(a) Involving an additional professional accountant to review the work done or
otherwise advise as necessary. This individual could be someone from outside
the firm or network firm, or someone within the firm or network firm who was
not otherwise associated with the assurance team;
(b) Consulting a third party, such as a committee of independent directors, a
professional regulatory body or another professional accountant;
(c) Rotation of senior personnel;
(d) Discussing independence issues with the audit committee or others charged
with governance;
(e) Disclosing to the audit committee, or others charged with governance, the
nature of services provided and extent of fees charged;
(f) Policies and procedures to ensure members of the assurance team do not
make, or assume responsibility for, management decisions for the assurance
client;
(g) Involving another firm to perform or re-perform part of the assurance
engagement;
(h) Involving another firm to re-perform the non-assurance service to the extent
necessary to enable it to take responsibility for that service; and
(j) Removing an individual from the assurance team, when that individual’s
financial interests or relationships create a threat to independence.
8.43 When the safeguards available, such as those described above, are insufficient to
eliminate the threats to independence or to reduce them to an acceptable level, or
when a firm chooses not to eliminate the activities or interests creating the threat, the
only course of action available will be the refusal to perform, or withdrawal from, the
assurance engagement.

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Engagement Period

8.44 The members of the assurance team and the firm should be independent of the
assurance client during the period of the assurance engagement. The period of the
engagement starts when the assurance team begins to perform assurance services
and ends when the assurance report is issued, except when the assurance
engagement is of a recurring nature. If the assurance engagement is expected to
recur, the period of the assurance engagement ends with the notification by either
party that the professional relationship has terminated or the issuance of the final
assurance report, whichever is later.
8.45 In the case of an audit engagement, the engagement period includes the period
covered by the financial statements reported on by the firm. When an entity becomes
an audit client during or after the period covered by the financial statements that the
firm will report on, the firm should consider whether any threats to independence may
be created by:
Financial or business relationships with the audit client during or after the
period covered by the financial statements, but prior to the acceptance of the
audit engagement; or
Previous services provided to the audit client.
Similarly, in the case of an assurance engagement that is not an audit engagement,
the firm should consider whether any financial or business relationships or previous
services may create threats to independence.
8.46 If non-assurance services were provided to the audit client during or after the period
covered by the financial statements but before the commencement of professional
services in connection with the audit and those services would be prohibited during
the period of the audit engagement, consideration should be given to the threats to
independence, if any, arising from those services. If the threat is other than clearly
insignificant, safeguards should be considered and applied as necessary to reduce
the threat to an acceptable level. Such safeguards might include:
Discussing independence issues related to the provision of the non-assurance
services with those charged with governance of the client, such as the audit
committee;
Obtaining the audit client’s acknowledgement of responsibility for the results of
the non-assurance services;
Precluding personnel who provided the non-assurance services from
participating in the audit engagement; and
Engaging another firm to review the results of the non-assurance services or
having another firm re-perform the non-assurance services to the extent
necessary to enable it to take responsibility for those services.
8.47 Non-assurance services provided to a non-listed audit client will not impair the firm’s
independence when the client becomes a listed entity provided:
The previous non-assurance services were permissible under this section for
non-listed audit clients;

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The services will be terminated within a reasonable period of time of the client
becoming a listed entity, if they are impermissible under this section for listed
audit clients; and
The firm has implemented appropriate safeguards to eliminate any threats to
independence arising from the previous services or reduce them to an acceptable
level.

Effective Date

8.48 This section is applicable to assurance engagements when the assurance report is
dated on or after December 31, 2004. Earlier application is encouraged.

SECTION 9

Professional Competence and Responsibilities Regarding the Use of Non-Accountants

9.1 Professional accountants in public practice should refrain from agreeing to perform
professional services which they are not competent to carry out unless competent
advice and assistance is obtained so as to enable them to satisfactorily perform such
services. If a professional accountant does not have the competence to perform a
specific part of the professional service, technical advice may be sought from experts
such as other professional accountants, lawyers, actuaries, engineers, geologists,
valuers.
9.2. In such situations, although the professional accountant is relying on the technical
competence of the expert, the knowledge of the ethical requirements cannot be
automatically assumed. Since the ultimate responsibility for the professional service
rests with the professional accountant, the professional accountant should see that
the requirements of ethical behavior are followed.
9.3. When using the services of experts who are not professional accountants, the
professional accountant must take steps to see that such experts are aware of ethical
requirements. Primary attention should be paid to the fundamental principles in
paragraph 16 of the Introduction to this Code. These principles would extend to any
assignment in which such experts would participate.
9.4. The degree of supervision and the amount of guidance that will be needed will
depend upon the individuals involved and the nature of the engagement. Examples of
such guidance and supervision might include:
Asking individuals to read the appropriate ethical codes
Requiring written confirmation of understanding of the ethical requirements, and
Providing consultation when potential conflicts arise.
9.5 The professional accountant should also be alert to specific independence
requirements or other risks unique to the engagement. Such situations will require
special attention and guidance/supervision to see that ethical requirements are met.
For example, Section 8 of this Code requires all professionals participating in the
assurance engagement to be independent of the assurance client.

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9.6 If at any time the professional accountant is not satisfied that proper ethical behavior
can be respected or assured, the engagement should not be accepted; or, if the
engagement has commenced, it should be terminated.

SECTION 10

Fees and Commissions

10.1 Professional accountants in public practice who undertake professional services for a
client, assume the responsibility to perform such services with integrity and objectivity
and in accordance with the appropriate technical standards. That responsibility is
discharged by applying the professional skill and knowledge which professional
accountants in public practice have acquired through training and experience. For the
services rendered, the professional accountant in public practice* is entitled to
remuneration.
* See definitions.

Professional Fees

10.2 Professional fees should be a fair reflection of the value of the professional services
performed for the client, taking into account:
(a) The skill and knowledge required for the type of professional services
involved.
(b) The level of training and experience of the persons necessarily engaged in
performing the professional services.
(c) The time necessarily occupied by each person engaged in performing the
professional services; and
(d) The degree of responsibility that performing those services entails.
10.3 Professional fees should normally be computed on the basis of appropriate rates per
hour or per day for the time of each person engaged in performing professional
services. These rates should be based on the fundamental premise that the
organization and conduct of the professional accountant in public practice and the
services provided to clients are well planned, controlled and managed. They should
take into account the factors set out in paragraph 10.2 and are influenced by the legal,
social and economic conditions of each country. It is for each professional accountant
in public practice to determine the appropriate rates.
10.4 A professional accountant in public practice should not make a representation that
specific professional services in current or future periods will be performed for either a
stated fee, estimated fee, or fee range if it is likely at the time of the representation
that such fees will be substantially increased and the prospective client is not advised
of that likelihood.
10.5 When performing professional services for a client it may be necessary or expedient
to charge a pre-arranged fee, in which event the professional accountant in public
practice should estimate a fee taking into account the matters referred to in
paragraphs 10.2 through 10.4.

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10.6 It is not improper for a professional accountant in public practice to charge a client a
lower fee than has previously been charged for similar services, provided the fee has
been calculated in accordance with the factors referred to in paragraphs 10.2 through
10.4.

Commentary
The fact that a professional accountant in public practice secures work by quoting a
fee lower than another is not improper. However, professional accountants in public
practice who obtain work at fees significantly lower than those charged by an existing
accountant,* or quoted by others, should be aware that there is a risk of a perception
that the quality of work could be impaired.
* See definitions.

Accordingly, when deciding on a fee to be quoted to a client for the performance of

professional services, a professional accountant should be satisfied that, as a result of
the fee quoted:
The quality of work will not be impaired and that due care will be applied to comply
with all professional standards and quality control procedures in the performance of
those services, and
The client will not be misled as to the precise scope of services that a quoted fee is
intended to cover and the basis on which future fees will be charged.
10.7 As stated in paragraph 8.208:
An assurance engagement should not be performed for a fee that is contingent on the
result of the assurance work or on items that are the subject matter of the assurance
engagement. Paragraph 8.209 provides guidance on threats that may be created if a
non-assurance engagement is provide to an assurance client for a contingent fee, and
the safeguards that may reduce the threats to an acceptable level.
Commentary
Fees should not be regarded as being contingent if fixed by a court or other public
authority. Fees charged on a percentage or similar basis, except when authorized by
statute or approved by a member body as generally accepted practice for certain
professional services, should be regarded as contingent fees.
10.8 The foregoing paragraphs relate to fees as distinct from reimbursement of expenses.
Out-of-pocket expenses, in particular traveling expenses, attributable directly to the
professional services performed for a particular client would normally be charged to
that client in addition to the professional fees.
10.9 It is in the best interests of both the client and the professional accountant in public
practice that the basis on which fees are computed and any billing arrangements are
clearly defined, preferably in writing, before the commencement of the engagement to
help in avoiding misunderstandings with respect to fees. (For further guidance refer to
International Standard on Auditing 210 "Terms of Audit Engagements".)
Commissions
10.10 In those countries where payment and receipt of commissions are permitted, either by
statute or by a member body, and the professional accountant in public practice
accepts such a commission this fact should be disclosed to the client.

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10.11 Subject to paragraph 10.10, a professional accountant in public practice should not
pay a commission to obtain a client nor should a commission be accepted for referral
of a client to a third party. A professional accountant in public practice should not
accept a commission for the referral of the products or services of others.
10.12 Payment and receipt of referral fees between professional accountants in public
practice when no services are performed by the referring accountant are regarded as
commissions for the purpose of paragraph 10.11.
10.13 A professional accountant in public practice may enter into an arrangement for the
purchase of the whole or part of an accounting practice requiring payments to
individuals formerly engaged in the practice or payments to their heirs or estates.
Such payments are not regarded as commissions for the purpose of paragraph 10.10.

SECTION 11

Activities Incompatible with the Practice of Public Accountancy

11.1 A professional accountant in public practice should not concurrently engage in any
business, occupation or activity which impairs or might impair integrity, objectivity or
independence, or the good reputation of the profession and therefore would be
incompatible with the rendering of professional services.
11.2 The rendering of two or more types of professional services concurrently does not by
itself impair integrity, objectivity or independence.
11.3 The simultaneous engagement in another business, occupation or activity unrelated
to professional services which has the effect of not allowing the professional
accountant in public practice properly to conduct a professional practice in
accordance with the fundamental ethical principles of the accountancy profession
should be regarded as inconsistent with the practice of public accountancy.

SECTION 12

Clients Monies

12.1 It is recognized that in some countries the law does not permit a professional
accountant in public practice to hold clients monies;*. in other countries there are
legal duties imposed on professional accountants in public practice who do hold such
monies. The professional accountant in public practice should not hold clients’ monies
if there is reason to believe that they were obtained from, or are to be used for, illegal
activities.
* See definitions.

12.2 A professional accountant in public practice entrusted with monies belonging to others
should:
(a) Keep such monies separately from personal or firm monies;
(b) Use such monies only for the purpose for which they are intended; and

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(c) At all times, be ready to account for those monies to any persons entitled to
such accounting.
12.3 A professional accountant in public practice should maintain one or more bank
accounts for clients’ monies. Such bank accounts may include a general client
account* into which the monies of a number of clients may be paid.
* See definitions.

12.4 Clients’ monies received by a professional accountant in public practice should be

deposited without delay to the credit of a client account, or - if in the form of
documents of title to money and documents of title which can be converted into
money - be safeguarded against unauthorized use.
12.5 Monies may only be drawn from the client account on the instructions of the client.
12.6 Fees due from a client may be drawn from client’s monies provided the client, after
being notified of the amount of such fees, has agreed to such withdrawal.
12.7 Payments from a client account shall not exceed the balance standing to the credit of
the client.
12.8 When it seems likely that the client’s monies remain on client account for a significant
period of time, the professional accountant in public practice should, with the
concurrence of the client, place such monies in an interest bearing account within a
reasonable time.
12.9 All interest earned on clients’ monies should be credited to the client account.
12.10 Professional accountants in public practice should keep such books of account as will
enable them, at any time, to establish clearly their dealings with clients’ monies in
general and the monies of each individual client in particular. A statement of account
should be provided to the client at least once a year.

SECTION 13

Relations with Other Professional Accountants in Public Practice

Accepting New Assignments

13.1 The extension of the operations of a business undertaking frequently results in the
formation of branches or subsidiary companies at locations where an existing
accountant* does not practice. In these circumstances, the client or the existing
accountant in consultation with the client may request a receiving accountant*
practicing at those locations to perform such professional services as necessary to
complete the assignment.
* See definitions.

13.2 Referral of business may also arise in the area of special services or special tasks.
The scope of the services offered by professional accountants in public practice
continues to expand and the depth of knowledge which is needed to serve the public
often calls for special skills. Since it is impracticable for any one professional
accountant in public practice to acquire special expertise or experience in all fields of
accountancy, some professional accountants in public practice have decided that it is

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neither appropriate nor desirable to develop within their firms the complete range of
special skills which may be required.
13.3 Professional accountants in public practice should only undertake such services
which they can expect to complete with professional competence. It is essential
therefore for the profession in general and in the interests of their clients that
professional accountants in public practice be encouraged to obtain advice when
appropriate from those who are competent to provide it.
13.4 An existing accountant without a particular skill may however be reluctant to refer a
client to another professional accountant in public practice who may possess that skill,
because of the fear of losing existing business to the other professional accountant in
public practice. As a result, clients may be deprived of the benefit of advice which they
are entitled to receive.
13.5 The wishes of the client should be paramount in the choice of professional advisers,
whether or not special skills are involved. Accordingly, a professional accountant in
public practice should not attempt to restrict in any way the client’s freedom of choice
in obtaining special advice, and when appropriate should encourage a client to do so.
13.6 The services or advice of a professional accountant in public practice having special
skills may be sought in one or other of the following ways:
(a) By the client
(i) After prior discussion and consultation with the existing accountant;
(ii) On the specific request or recommendation of the existing accountant;
and
(iii) Without reference to the existing accountant; or
(b) By the existing accountant with due observance of the duty of confidentiality.
13.7 When a professional accountant in public practice is asked to provide services or
advice, inquiries should be made as to whether the prospective client has an existing
accountant. In cases where there is an existing accountant who will continue to
provide professional services, the procedures set out in paragraphs 13.8-13.14 should
be observed. If the appointment will result in another professional accountant in public
practice being superseded, the procedures set out in paragraphs 13.15-13.26 should
be followed.
13.8 The receiving accountant should limit the services provided to the specific assignment
received by referral from the existing accountant or the client unless otherwise
requested by the client. The receiving accountant also has the duty to take
reasonable steps to support the existing accountant’s current relationship with the
client and should not express any criticism of the professional services of the existing
accountant without giving the latter an opportunity to provide all relevant information.
13.9 A receiving accountant who is asked by the client to undertake an assignment of a
type which is clearly distinct from that being carried out by the existing accountant or
from that initially received by referral from the existing accountant or from the client,
should regard this as a separate request to provide services or advice. Before
accepting any appointments of this nature, the receiving accountant should advise the
client of the professional obligation to communicate with the existing accountant and
should immediately do so preferably in writing, advising of the approach made by the

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client and the general nature of the request as well as seeking all relevant information,
if any, necessary to perform the assignment.
13.10 Circumstances sometimes arise when the client insists that the existing accountant should
not be informed. In this case, the receiving accountant should decide whether the client’s
reasons are valid. In the absence of special circumstances a mere disinclination by the
client for communication with the existing accountant would not be a satisfactory reason.
13.11 The receiving accountant should:
(a) Comply with the instructions received from the existing accountant or the client to the extent
that they do not conflict with relevant legal or other requirements; and
(b) Ensure, insofar as it is practicable to do so, that the existing accountant is kept informed of
the general nature of the professional services being performed.
13.12 When there are two or more other professional accountants in public practice performing
professional services for the client concerned it may be appropriate to notify only the
relevant professional accountant in public practice depending on the specific services being
performed.
13.13 When appropriate the existing accountant, in addition to issuing instructions concerning
referred business, should maintain contact with the receiving accountants and cooperate
with them in all reasonable requests for assistance.
13.14 When the opinion of a professional accountant, other than the existing accountant, is sought
on the application of accounting, auditing, reporting or other standards or principles to
specific circumstances or transactions, the professional accountant should be alert to the
possibility of the opinion creating undue pressure on the judgment and objectivity of the
accountant. An opinion given without full and proper facts can cause difficulty to the
receiving accountant if the opinion is challenged or the receiving accountant is subsequently
appointed by the company. Accordingly, the professional accountant should seek to
minimize the risk of giving inappropriate guidance by ensuring that he or she has access to
all relevant information. When there is a request for an opinion in the above circumstances
there is a requirement for communication with the existing accountant. It is important that
the existing accountant, with the permission of the client, provide the receiving accountant
with all requested relevant information about the client. With the permission of the client, the
receiving accountant should also provide a copy of the final report to the existing
accountant. If the client does not agree to these communications, then the engagement
should ordinarily not be performed.
Superseding Another Professional Accountant in Public Practice
13.15 The proprietors of a business have an indisputable right to choose their professional
advisers and to change to others should they so desire. While it is essential that the
legitimate interests of the proprietors are protected, it is also important that a professional
accountant in public practice who is asked to replace another professional accountant in
public practice has the opportunity to ascertain if there are any professional reasons why the
appointment should not be accepted. This cannot effectively be done without direct
communication with the existing accountant. In the absence of a specific request, the
existing accountant should not volunteer information about the client’s affairs.
13.16 Communication enables a professional accountant in public practice to ascertain
whether the circumstances in which a change in appointment is proposed are such
that the appointment can properly be accepted and also whether there is a wish to

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undertake the engagement. In addition, such communication helps to preserve the

harmonious relationships which should exist between all professional accountants in
public practice on whom clients rely for professional advice and assistance.
13.17 The extent to which an existing accountant can discuss the affairs of the client with
the proposed professional accountant in public practice depend on:
(a) Whether the client’s permission to do so has been obtained; and/or
(b) The legal or ethical requirements relating to such disclosure which may vary
by country.
13.18 The proposed professional accountant in public practice should treat in the strictest
confidence and give due weight to any information provided by the existing
accountant.
13.19 The information provided by the existing accountant may indicate, for example, that
the ostensible reasons given by the client for the change are not in accordance with
the facts. It may disclose that the proposal to make a change in professional
accountants in public practice was made because the existing accountants stood their
ground and properly carried out the duties as professional accountants in public
practice despite opposition or evasion on an occasion on which important differences
of principles or practice have arisen with the client.
13.20 Communication between the parties therefore serves:
(a) To protect a professional accountant in public practice from accepting an
appointment in circumstances where all the pertinent facts are not known.
(b) To protect the minority proprietors of a business who may not be fully informed
of the circumstances in which the change is proposed.
(c) To protect the interests of the existing accountant when the proposed change
arises from, or is an attempt to interfere with, the conscientious exercise of the
existing accountant’s duty to act as an independent professional.
13.21 Before accepting an appointment involving recurring professional services hitherto
carried out by another professional accountant in public practice, the proposed
professional accountant in public practice should:
(a) Ascertain if the prospective client has advised the existing accountant of the
proposed change and has given permission, preferably in writing, to discuss
the client’s affairs fully and freely with the proposed professional accountant in
public practice.
(b) When satisfied with the reply received from prospective client, request
permission to communicate with the existing accountant. If such permission is
refused or the permission referred to in (a) above is not given, the proposed
professional accountant in public practice should, in the absence of
exceptional circumstances of which there is full knowledge, and unless there is
satisfaction as to necessary facts by other means, decline the appointment.
(c) On receipt of permission, ask the existing accountant, preferably in writing:
(i) To provide information on any professional reasons which should be known
before deciding whether or not to accept the appointment and, if there are
such matters; and
(ii) To provide all the necessary details to be able to come to a decision.

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13.22 The existing accountant, on receipt of the communication referred to in paragraph

13.21 (c) should forthwith:
(a) Reply, preferably in writing, advising whether there are any professional
reasons why the proposed professional accountant in public practice should
not accept the appointment.
(b) If there are any such reasons or other matters which should be disclosed,
ensure that the client has given permission to give details of this information to
the proposed professional accountant in public practice. If permission is not
granted, the existing accountant should report that fact to the proposed
professional accountant in public practice.
(c) On receipt of permission from the client, disclose all information needed by the
proposed professional accountant in public practice to be able to decide
whether or not to accept the appointment, and discuss freely with the
proposed professional accountant in public practice all matters relevant to the
appointment of which the latter should be aware.
13.23 If the proposed professional accountant in public practice does not receive, within a
reasonable time, a reply from the existing accountant and there is no reason to
believe that there are any exceptional circumstances surrounding the proposed
change, the proposed professional accountant in public practice should endeavor to
communicate with the existing accountant by some other means. If unable to obtain a
satisfactory outcome in this way, the proposed professional accountant in public
practice should send a further letter, stating that there is an assumption that there is
no professional reason why the appointment should not be accepted and that there is
an intention to do so.
13.24 The fact that there may be fees owing to the existing accountant is not a professional
reason why another professional accountant in public practice should not accept the
appointment.
13.25 The existing accountant should promptly transfer to the new professional accountant
in public practice all books and papers of the client which are or may be held after the
change in appointment has been effected and should advise the client accordingly,
unless the professional accountant in public practice has a legal right to withhold
them.
13.26 Certain organizations, either because of legislative requirements or otherwise, call for
submissions or tenders, e.g., competitive bids, in relation to professional services
offered by accountants in public practice. In reply to a public advertisement or an
unsolicited request to make a submission or submit a tender, a professional
accountant in public practice should, if the appointment may result in the replacement
of another professional accountant in public practice, state in the submission or tender
that before acceptance the opportunity to contact the other professional accountant in
public practice is required so that inquiries may be made as to whether there are any
professional reasons why the appointment should not be accepted. If the submission
or tender is successful, the existing accountant should then be contacted.

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SECTION 14

Advertising and Solicitation

14.1 Whether or not advertising* and solicitation* by individual professional accountants

in public practice are permitted is a matter for member bodies to determine based
upon the legal, social and economic conditions in each country.
* See definitions.

14.2 When permitted, such advertising and solicitation should be aimed at informing the
public in an objective manner and should be decent, honest, truthful and in good
taste. Solicitation by the use of coercion or harassment should be prohibited.
14.3 Examples of activities which may be considered not to meet the above criteria include
those that:
(a) Create false, deceptive or unjustified expectations of favorable results;
(b) Imply the ability to influence any court, tribunal, regulatory agency or similar
body or official;
(c) Consist of self-laudatory statements that are not based on verifiable facts;
(d) Make comparisons with other professional accountants in public practice;
(e) Contain testimonials or endorsements;
(f) Contain any other representations that would be likely to cause a reasonable
person to misunderstand or be deceived; and
(g) Make unjustified claims to be an expert or specialist in a particular field of
accountancy.
14.4 A professional accountant in public practice in a country where advertising is
permitted should not seek to obtain an advantage by advertising in newspapers or
magazines published or distributed in a country where advertising is prohibited.
Similarly, a professional accountant in public practice in a country where advertising is
prohibited should not advertise in a newspaper or magazine published in a country
where advertising is permitted.
14.5 In situations where professional accountants in public practice in their international
cross border activities violate the provisions of paragraph 14.4, contact should take
place between the member body in the country in which the violation takes place and
the member body of the home country of the professional accountant in public
practice to ensure that the member body in the home country is made aware of such
violation.
14.6 It is clearly desirable that the public should be aware of the range of services available
from a professional accountant. Accordingly there is no objection to a member body
communicating such information to the public on an institutional basis, i.e., in the
name of the member body.
Publicity by Professional Accountants in Public Practice in a Non-Advertising
Environment

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14.7 When advertising is not permitted, publicity by individual professional accountants in

public practice is acceptable provided:
(a) It has as its object the notification to the public or such sectors of the public as
are concerned, of matters of fact in a manner that is not false, misleading or
deceptive;
(b) It is in good taste;
(c) It is professionally dignified; and
(d) It avoids frequent repetition of, and any undue prominence being given to the
name of the professional accountant in public practice.
14.8 The examples which follow are illustrative of circumstances in which publicity is
acceptable and the matters to be considered in connection therewith subject always
to the overriding requirements mentioned in the preceding paragraph.
Appointments and Awards
It is in the interests of the public and the accountancy profession that any appointment
or other activity of a professional accountant in a matter of national or local
importance, or the award of any distinction to a professional accountant, should
receive publicity and that membership of the professional body should be mentioned.
However, the professional accountant should not make use of any of the
aforementioned appointments or activities for personal professional advantage.
Professional Accountants Seeking Employment or Professional Business
A professional accountant may inform interested parties through any medium that a
partnership or salaried employment of an accountancy nature is being sought. The
professional accountant should not, however, publicize for subcontract work in a
manner which could be interpreted as seeking to procure professional business.
Publicity seeking subcontract work may be acceptable if placed only in the
professional press and provided that neither the professional accountant’s name,
address or telephone number appears in the publicity. A professional accountant may
write a letter or make a direct approach to another professional accountant when
seeking employment or professional business.
Directories
A professional accountant may be listed in a directory provided neither the directory
itself nor the entry could reasonably be regarded as a promotional advertisement for
those listed therein. Entries should be limited to name, address, telephone number,
professional description and any other information necessary to enable the user of the
directory to make contact with the person or organization to which the entry relates.
Books, Articles, Interviews, Lectures, Radio and Television Appearances
Professional accountants who author books or articles on professional subjects, may
state their name and professional qualifications and give the name of their
organization but shall not give any information as to the services that firm provides.
Similar provisions are applicable to participation by a professional accountant in a
lecture, interview or a radio or television program on a professional subject. What
professional accountants write or say, however, should not be promotional of
themselves or their firm but should be an objective professional view of the topic

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under consideration. Professional accountants are responsible for using their best
endeavors to ensure that what ultimately goes before the public complies with these
requirements.
Training Courses, Seminars, etc.
A professional accountant may invite clients, staff or other professional accountants to
attend training courses or seminars conducted for the assistance of staff. Other
persons should not be invited to attend such training courses or seminars except in
response to an unsolicited request. The requirement should in no way prevent
professional accountants from providing training services to other professional bodies,
associations or educational institutions which run courses for their members or the
public. However, undue prominence should not be given to the name of a professional
accountant in any booklets or documents issued in connection therewith.
Booklets and Documents Containing Technical Information
Booklets and other documents bearing the name of a professional accountant and
giving technical information for the assistance of staff or clients may be issued to such
persons or to other professional accountants.
Other persons should not be issued with such booklets or documents except in
response to an unsolicited request.
Staff Recruitment
Genuine vacancies for staff may be communicated to the public through any medium
in which comparable staff vacancies normally appear. The fact that a job specification
necessarily gives some detail as to one or more of the services provided to clients by
the professional accountant in public practice is acceptable but it should not contain
any promotional element. There should not be any suggestion that the services
offered are superior to those offered by other professional accountants in public
practice as a consequence of size, associations, or for any other reason.
In publications such as those specifically directed to schools and other places of
education to inform students and graduates of career opportunities in the profession,
services offered to the public may be described in a businesslike way.
More latitude may also be permissible in a section of a newspaper devoted to staff
vacancies than would be allowed if the vacancy appeared in a prominent position
elsewhere in a newspaper on the grounds that it would be most unlikely that a
potential client would use such media to select a professional adviser.
Publicity on Behalf of Clients
A professional accountant in public practice may publicize on behalf of clients,
primarily for staff. However, the professional accountant in public practice should
ensure that the emphasis in the publicity is directed towards the objectives to be
achieved for the client.
Brochures and Firm Directories
A professional accountant in public practice may issue to clients or, in response to an
unsolicited request, to a non-client:
(a) A factual and objectively worded account of the services provided; and

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(b) A directory setting out names of partners, office addresses and names and
addresses of associated firms and correspondents.
Stationery and Nameplates
Stationery of professional accountants in public practice should be of an acceptable
professional standard and comply with the requirements of the law and of the member
body concerned as to names of partners, principals and others who participate in the
practice, use of professional descriptions and designatory letters, cities or countries
where the practice is represented, logotypes, etc. The designation of any services
provided by the practice as being of specialist nature should not be permitted. Similar
provisions, where applicable, should apply to nameplates.
Newspaper Announcements
Appropriate newspapers or magazines may be used to inform the public of the
establishment of a new practice, of changes in the composition of a partnership of
professional accountants in public practice, or of any alteration in the address of a
practice.
Such announcements should be limited to a bare statement of facts and consideration
given to the appropriateness of the area of distribution of the newspaper or magazine
and number of insertions.
Inclusion of the Name of a Professional Accountant in Public Practice in a Document
Issued by a Client
When a client proposes to publish a report by a professional accountant in public
practice dealing with the client’s existing business affairs or in connection with the
establishment of a new business venture, the professional accountant in public
practice should take steps to ensure that the context in which the report is published
is not such as might result in the public being misled as to the nature and meaning of
the report. In these circumstances, the professional accountant in public practice
should advise the client that permission should first be obtained before publication of
the document.
Similar consideration should be given to other documents proposed to be issued by a
client containing the name of a professional accountant in public practice acting in an
independent professional capacity. This does not preclude the inclusion of the name
of a professional accountant in public practice in the annual report of a client.
When professional accountants in their private capacity are associated with, or hold
office in, an organization, the organization may use their name and professional
status on stationery and other documents. The professional accountant in public
practice should ensure that this information is not used in such a way as might lead
the public to believe that there is a connection with the organization in an independent
professional capacity.
* See definitions.

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PART C – APPLICABLE TO EMPLOYED PROFESSIONAL

ACCOUNTANTS

The following sections contain guidance which is particularly relevant to professional

accountants working in industry, commerce, the public sector or education. Professional
accountants employed in public practice should be aware they may find that the principles set
out below are also of application to their particular circumstances. If professional accountants
employed in practice are in doubt as to the applicability of any particular guidance, they
should seek assistance from their professional body.

SECTION 15

Conflict of Loyalties

15.1 Employed professional accountants owe a duty of loyalty to their employer as well as
to their profession and there may be times when the two are in conflict. An
employee’s normal priority should be to support his or her organization’s legitimate
and ethical objectives and the rules and procedures drawn up in support of them.
However, an employee cannot legitimately be required to:
(a) Break the law;
(b) Breach the rules and standards of their profession;
(c) Lie to or mislead (including misleading by keeping silent) those acting as
auditors to the employer; or
(d) Put their name to or otherwise be associated with a statement which materially
misrepresents the facts.
15.2 Differences in view about the correct judgment on accounting or ethical matters
should normally be raised and resolved within the employee’s organization, initially
with the employee’s immediate superior and possibly thereafter, where disagreement
about a significant ethical issue remains, with higher levels of management or non
executive directors.
15.3 If employed accountants cannot resolve any material issue involving a conflict
between their employers and their professional requirements they may, after
exhausting all other relevant possibilities, have no other recourse but to consider
resignation. Employees should state their reasons for doing so to the employer but
their duty of confidentiality normally precludes them from communicating the issue to
others (unless legally or professionally required to do so).
15.4 For further guidance as to the considerations involved see Section 2 - Resolution of
Ethical Conflicts.

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SECTION 16

Support for Professional Colleagues

16.1 A professional accountant, particularly one having authority over others, should give
due weight for the need for them to develop and hold their own judgment in
accounting matters and should deal with differences of opinion in a professional way.

SECTION 17

Professional Competence

17.1 A professional accountant employed in industry, commerce, the public sector or

education may be asked to undertake significant tasks for which he or she has not
had sufficient specific training or experience. When undertaking such work the
professional accountant should not mislead the employer as to the degree of
expertise or experience he or she possesses, and where appropriate expert advice
and assistance should be sought.

SECTION 18

Presentation of Information

18.1 A professional accountant is expected to present financial information fully, honestly

and professionally and so that it will be understood in its context.

18.2 Financial and non-financial information should be maintained in a manner that

describes clearly the true nature of business transactions, assets or liabilities and
classifies and records entries in a timely and proper manner, and professional
accountants should do everything that is within their powers to ensure that this is the
case.

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