EG Module 2 21-24

Members need to evaluate the threat to determine whether it is at an acceptable level, which is defined as the level at which a reasonable and informed third party would likely conclude that the member complies with the fundamental principles.

Both qualitative and quantitative factors must be considered when evaluating a threat or the combined impact of threats.

The accountant’s primary duty is to the public, not to the client or employer.

Objectivity refers to the state of being true and impartial, free from individual feelings or interpretations that may impair professional judgement.

A related party transaction occurs when an organization deals with parties that cannot be seen as independent, which can lead to a lack of objectivity and potential conflicts of interest.

The accountant should consider and apply safeguards to reduce the threat to an acceptable level.

Due diligence and appropriate supervision are critical to the work of accountants, especially during busy times, to prevent errors that may occur due to overlooked details in favor of meeting deadlines.

London's conduct was an egregious violation of his ethical and professional duties by illegally providing confidential information to a friend for personal gain.

Members can consult others within the firm, those charged with governance, a professional body, a regulatory body, or legal counsel.

It is a code that includes amendments made to the ethical standards for professional accountants over time, incorporating the IESBA Code.

It provides guidance for resolving conflicts of interest and other ethical situations that may arise.

Intimidation.

IFAC defines public interest as ‘the sum of the benefits that citizens receive from the services provided by the accountancy profession, incorporating the effects of all regulatory measures designed to ensure the quality and provision of such services’.

Professional accountants must respect the confidentiality of information acquired through professional relationships and should not disclose it without proper authority, unless legally required.

(a) Eliminating the circumstances creating the threats, (b) Applying safeguards to reduce the threats, or (c) Declining or ending the specific professional activity.

A rules-based code can become too prescriptive and voluminous, causing ethical decision making to focus on rule adherence rather than protecting fundamental principles.

They must comply with the APESB Code of Ethics, including when providing professional services in an honorary capacity.

Integrity requires strength of character, the courage to pursue one’s convictions, and the obligation to be straightforward and honest in professional and business relationships.

This creates an intimidation threat, pressuring the member to compromise their ethical standards.

Safeguarding the public interest is the overriding responsibility that underpins all professional duties and obligations.

Confidential information can be disclosed when required by law, permitted by law with client authorization, or when there is a professional duty or right to disclose.

Scott London was charged by the FBI with insider trading.

A safeguard.

The principles deal with the fundamentals of ethical behaviour expected of members, irrespective of where they practice.

NOCLAR allows members to report actual or suspected non-compliance with laws and regulations by a client or employer when such disclosure is in the public interest.

Self-interest.

A member is required to ensure they act diligently and in accordance with professional standards that apply to their work.

A member should not associate themselves with documents where the member believes the content is materially false.

A member shall make clients or employers aware of any limitations of the services a member is providing.

Forms of guidance include corporate governance requirements, educational and training requirements, effective complaint systems, a duty to report breaches of ethics, and professional or regulatory monitoring procedures.

Members need to evaluate and respond to the threat by eliminating it or reducing it to an acceptable level.

They should either decline or discontinue the specific professional service involved, or consider resigning from the client or employer.

Addressing threats that have been evaluated as not being at an acceptable level.

London was banned by the SEC from auditing public companies, sentenced to 14 months in jail, and ordered to pay a $100,000 fine.

The process of eliminating them or reducing them to an acceptable level.

Diligence involves acting in accordance with assignment requirements, carefully, thoroughly, and on a timely basis.

IESBA develops and issues the International Code of Ethics for Professional Accountants, including International Independence Standards.

Members in business should consider the nature and scope of the professional activity, the client and its operating environment, and the work environment within the employing organization.

Seek legal advice if they believe unethical behavior has occurred, or will continue to occur, within their employing organization.

Accountants must promote the good reputation of the profession and their colleagues by avoiding exaggerated claims and disparaging references.

Identify threats, assess if the threat is at an acceptable level, and eliminate or reduce the threat if necessary.

Accountants should be impartial, honest, and free from conflicts of interest.

These terms indicate the difference in interpretation and application of clauses within the Code.

The hierarchy illustrates that the Code of Ethics is at its apex, supported by standards covering specific topics and guidance notes.

Intimidation.

Familiarity.

This creates a familiarity threat, which may impair the member's objectivity.

This creates a self-review threat, as the reviewer may lack objectivity.

A distinguishing feature of a profession is its commitment to promote and preserve the public interest even if it comes at the expense of its members’ and its own self-interest.

Accountants have a duty to clients, employers, shareholders, and the accounting community.

A professional accountant must comply with laws and regulations, act in the public interest, and avoid conduct that could discredit the profession.

The fundamental principles form the foundation of the Code of Ethics and are to be applied by all members irrespective of the context in which they work.

It encompasses the pursuit of excellence for the benefit of others, including integrity, objectivity, independence, confidentiality, adherence to technical and professional standards, competence and due care, and ethical behaviour.

The Guide highlights how the Code of Ethics should be read and used, ensuring members understand the rationale underlying the Code.

1. Identify threats to compliance with the fundamental principles; 2. Evaluate the threats identified; 3. Address the threats by eliminating or reducing them to an Acceptable Level.

Consultation with superiors within the employing organization or with a relevant professional body.

They are regarded as the minimum standard of ethical behaviour and are used as ethical outcomes in resolving ethical and professional dilemmas.

The intimidation threat is when a Member is deterred from acting objectively due to actual or perceived pressures, including undue influence.

Responsibilities include providing sound financial and business reporting, facilitating comparability of financial reporting, applying high standards of ethical behavior, specifying educational requirements, and contributing to sound corporate governance.

Members are encouraged to document the substance of issues, processes, and outcomes.

The conceptual framework approach relies on the application of key principles for decision making.

It expresses the distinguishing mark of the accounting profession, which is the responsibility to act in the public interest.

The context in which activities have taken place, including any relationships and interests.

Self-review.

The advocacy threat involves a Member promoting a client’s or employing organisation’s position to the point that the Member’s objectivity is compromised.

It may be a breach of a principle if a member associates themselves with statements or information that was provided recklessly.

Members in public practice should consider the firm and its operating environment, including leadership's promotion of compliance with fundamental principles and policies that monitor compliance.

Identification and evaluation.

Michael Woodford demonstrated moral courage by blowing the whistle on a USD1.7 billion fraud, despite facing personal hardship and risking his life.

Decline to engage in or end a particular professional activity.

The first obligation is to maintain professional knowledge and skill, and the second is to act diligently in accordance with applicable technical and professional standards.

The accountant should consider discontinuing their service for the employer.

An inquiring mind is important as it involves questioning and critically evaluating information to ensure sound professional judgement.

The self-interest threat refers to a financial or other interest that inappropriately influences a Member’s judgement or behaviour.

Members shall not mislead clients or potential clients with claims that misrepresent their actual qualifications or experience.

A member shall disassociate themselves from information that is false, provided recklessly or omits information that might otherwise lead a reader to interpret a situation differently if a full and clear account of a situation was presented.

A Member being threatened with dismissal from a client engagement or the Firm because of a disagreement about a professional matter.

This creates an advocacy threat, as the member may prioritize the client's interests over ethical considerations.

This creates a self-review threat, as the member may struggle to objectively evaluate the prior work.

It is a continuing process rather than a one-off task, requiring ongoing monitoring and re-evaluation as new information arises.

The Code is divided into four parts: compliance requirements, application for members in business, application for members in public practice, and independence standards for assurance services.

Members must have an inquiring mind, exercise professional judgement, and use the reasonable and informed third party test.

Accountants maintain professional competence by keeping up to date with relevant technical, professional, business, and technology-related developments.

The NOCLAR requirements became effective on 1 January 2018.

Accountants shall not knowingly be associated with information that contains materially false or misleading statements, is provided recklessly, or omits required information that would be misleading.

The five categories of threat are self-interest, self-review, advocacy, familiarity, and intimidation.

This fundamental principle deals with implicit fair dealing and truthfulness.

The self-review threat occurs when a Member does not appropriately evaluate the results of a previous judgement or activity that they relied on for a current judgement.

A member needs to be conscious about inadvertent disclosure of client information.

Information acquired as a result of working on an engagement shall not be disclosed unless there is a legal or professional duty to do so.

Members should not be involved with the publication of information where the presentation of information omits or obscures the true substance of a situation.

Members have a professional duty or right to disclose information where not prohibited by law to comply with quality reviews conducted by CPA Australia or responding to an inquiry or investigation by CPA Australia.

This creates an advocacy threat, potentially compromising the member's objectivity.

This creates a familiarity threat, which may impair the member's objectivity.

Integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.

Self-interest.

Conduct that a reasonable and informed third party would be likely to conclude adversely affects the good reputation of the profession is conduct that is or may be defined as conduct discrediting the profession.

This creates a self-review threat due to the potential for bias in the engagement.

This creates an advocacy threat, compromising the member's objectivity.

This creates a self-interest threat, which can impair the member's objectivity.

Familiarity.

Self-interest.

This creates a familiarity threat, potentially impairing objectivity.

No, the reasonable and informed third party does not need to be a member of a professional accounting body.

Conditions include having sufficient relevant information, applying appropriate professional standards, and maintaining objectivity.

The familiarity threat arises when a Member has a long or close relationship with a client or employing organisation, leading to excessive sympathy towards their interests.

Members shall avoid conduct that they know may discredit the profession.

A Member participating in incentive compensation arrangements offered by the employing organisation.

Ending a relationship between a client or employing organisation does not mean that a member is free to share information with other parties or on social media.

A member shall not undertake a professional engagement if there is a situation or relationship that may unduly influence the member’s exercise of professional judgement if they were to engage in that activity.

Information acquired as a result of professional and business relationships shall not be used for the personal advantage of the member or the advantage of a third party.

This creates a self-interest threat, especially if the acceptance of the gift is threatened to be made public.

This creates an intimidation threat, as the member may feel compelled to compromise their professional judgment.

Members are obliged to ensure their professional judgement is not compromised due to undue influence by others.

A Member having access to corporate assets for personal use creates a self-interest threat.

A member shall take necessary measures to ensure people working under their authority are properly supervised and trained.

This creates a self-review threat, as the member may lack objectivity in evaluating their own work.

Proper authorisation shall be obtained before certain kinds of information are shared with parties that are not involved in an engagement within a company or professional practice.

Disparaging references or unsubstantiated comparisons to the work of others shall not be made by a member.

If the fee is so low that it might be difficult to perform the Professional Service in accordance with applicable technical and professional standards, it creates a self-interest threat.

This creates a self-review threat, as the member may not be objective in evaluating their own work.

This creates a self-interest threat, compromising the member's integrity.