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CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS

Introduction
The mission of International Federation of Accountants (IFAC) is worldwide
development and enhancement of an accountancy profession with harmonized
standards, able to provide services of consistently high quality in the public interest.
In pursuing this mission, IFAC Board established Ethics Committee to develop and
issue high quality ethical standards and other pronouncements for professional
accountants for use around the world. NBAA is a member of IFAC hence may apply
agreed standards.
Acceptance of the responsibility to act in the public interest is the distinguishing mark
of the accountancy profession. Therefore, a professional accountants responsibility
is not exclusively to satisfy the needs of an individual client or employer but to serve
the public interest.
IFAC CODE OF ETHICS OF PROFESSIONAL ACCOUNTANTS
The Code of Ethics for Professional Accountants establishes ethical requirements for
professional accountants. A member body of IFAC or firm may not apply less
stringent standards than those stated in the IFAC Code. However, if a member is
prohibited from complying with certain parts of this Code by the law or regulation,
they should comply with all other remaining parts of this Code.
Some jurisdictions may have requirements and guidance that differs from this Code,
professional accountants should be aware of those differences and comply with the
more stringent requirements and guidance unless prohibited by law or regulation.
There are 6 fundamental principles, which a professional accountant (in public
practice or in business) should comply:
1. Integrity
2. Objectivity
3. Professional competence and due care
4. Confidentiality
5. Professional behavior
6. Technical standards
1. Professional integrity
Professional integrity refers honesty, fair dealing, trustworthy and free from conflict
of interest.

Professional accountant should be straightforward and honest in all

professional and business relationships.

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It also refers to personal qualities and attributes that are considered essential for the
auditor. These include probity, transparency, correct interpretation of facts, ability to
make fair decisions, and ability to exercise reasonable skill, care and caution.
Auditors conduct is essential.
2. Professional objectivity
Objectivity refers to the careful use of protracted procedures and test to arrive to a
conclusion such that a similar independent test by another person would give the same
conclusion.
The principle of objectivity imposes an obligation on all professional accountants not
to compromise their professional or business judgment because of bias, conflict of
interest or the undue influence of others.
3. Professional competence and Due Care
The principle of competence and due care imposes the following obligations to
professionals:
(a) To maintain professional knowledge and skill at the level required to ensure that
clients or employers receive competent professional services and
(b) To act diligently in accordance with applicable technical and professional
standards when offering services.
Professional competence may be divided into 2 phases:
(i)

Attainment of professional competence:

High standard of general education. For example passing professional

examinations (CPA, ACCA, or its equivalent) and ensuring proper
registration with respective accounting and auditing professional bodies.

(ii)

Relevant and adequate working experience.

Maintenance of professional competence:

Continuing awareness of the developments in the profession by attending
Continuing Professional Education program (CPE).

4. Confidentiality
Professional accountants in business and in public practice should respect
confidentiality of information acquired during the course of performing professional
services and should not use or disclose or appear to use any such information without
proper and specific authority or for personal advantage or advantage of the 3 rd party
unless there is a legal or professional right or duty to disclose.

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The principle requires not to:
(a) Disclose outside the firm or employing organisation confidential information
acquired as a result of professional and business relationships without proper and
specific authority
(b) Use confidential information acquired to their personal advantage or the
advantage of third parties.
Professionals have an obligation to respect the confidentiality of information about a
clients or employers affairs acquired in the course of professional services. The duty
of confidentiality continues even after the end of the relationship between the
professional auditor and the client or employer.
When confidential information can be disclosed
(a) When disclosure is authorized. When authorization to disclose is given by the
client or the employer
(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,

(ii)

To protect the professional interests of a professional auditor 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.

Factors to consider when disclosing confidential information

(a) Whether the interests of all parties, including 3rd parties whose interest may be
affected, could be harmed if the client or employer consents to the disclosure of
information by the professional accountants
(b) The type of communication that is expected and to whom it is addressed; in
particular, professional accountants should be satisfied that the parties to whom
the communication is addressed are appropriate recipients.
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(c) Whether all the relevant information is known and substantiated, to the extent it is
practicable; when the situation involves unsubstantiated facts, incomplete
information or unsubstantiated conclusions, professional Judgment should be used
in determining the type of disclosures to be made if any.
5. Professional Behavior
The principle of professional behavior imposes an obligation on professional
accountants to comply with relevant laws and regulations and avoid any action that
may bring discredit to profession. This includes actions which a reasonable and
informed third party, having knowledge of all relevant information, would conclude
negatively affects the good reputation of the profession.
Advertising and solicitation
In marketing and promoting themselves and their work, professional accountants
should not bring the profession into disrepute. Professional Accountants in Public
Practice should be honest and truthful and should not:
(a) Make exaggerated claims for services offers,
(b) Make exaggerated claims for qualification possessed or
(c) Make exaggerated claims for experience gained; or
(d) Make disparaging reference to unsubstantiated comparisons to the work of
another. In short not allowed to degrade other members
(e) Make unjustified claims to be an expert or specialist in a particular field of
accountancy
(f) Imply the ability to influence any court, tribunal, regulatory agency or similar
body or official
(g) Create a false, deceptive or unjustified expectations of favorable results
Publicity by Professional Accountants in Public Practice in a Non Advertising
Environment
When advertising is not permitted, publicity by individual professional accountants in
public practice is acceptable provided that:
(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

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(d) It avoids frequent repetition of, and any undue prominence being given to the
name of the professional accountant in public practice.
Conflict of Loyalties to Employed Professional Accountants
Professional accountants employed in public practice, industries, business, public
sectors etc owe a duty of loyalty to their employers as well as to their
profession.
There may be times or situations or circumstances when the two are in conflict. An
employees normal priority should be to support his or her organizations
legitimate and ethical objectives and the rules and procedures drawn up in
support of them.
However, an employee can not legitimately be required to:
(a) Break the law
(b) Breach the rules and standards of 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.
Should there be a conflict, then, the matter should be resolved within the employees
organization, initially with the employees immediate superior and if not then it can be
taken to higher management level or non executive directors.
If the matter is still unresolved after exhausting all other relevant possibilities, the
employee has no other recourse but to consider resignation. Employees should state
their reasons for resignation but their duty of confidentiality normally precludes them
from communicating the issue to other (unless legally or professionally required to do
so.
NBAA CODE OF ETHICS
The following are the NBAAs Codes of ethics for professional accountants either in
Public Practice (PP), in the Industry or in Public Services:

Integrity and Objectivity

Resolving ethical conflicts

Competence

Confidentiality

Tax practice

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Professional behavior

Cross boarder activities

Integrity and Objectivity

This implies not merely honest but fair dealing and trustfulness. The principle of
objectivity imposes the obligation on all professional accountants to be fair,
intellectually honest and free of conflicts of interest. Professional accountants serve in
many different capacities and demonstrate their objectivity in varying circumstances.
Resolving ethical conflicts
Professional accountants encounter situations that give rise to conflicts of interests. It
is recognized, however, that there can be particular factors which occur when the
responsibilities of professional accountants may conflict with internal or external
demands of one type or another:

There may be a danger of pressure supervisor, manager, director, family or

partner

The accountant may be asked to act contrary to the technical/professional

standards

A question of divided loyalty between professional accountants superior and

the required professional standards

Conflicts due to misleading information published which may be to the

advantage of employer or client and which may or may not benefit the
professional accountant.

When faced with significant issues, professional accountants should follow the
established policies of the employing organization to seek a resolution of such a
conflict.
If those policies do not resolve the ethical conflicts, the following should be
considered:

Review the conflict problem with the immediate supervisor

Seek cancelling and advice confidentially to an independent advisor or NBAA

or TAA to obtain the possible course of action.

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If the conflict still exist after fully exhausting all levels of internal review, the
accountant should resign and submit an information to an appropriate
representative of the organization.

Competence
The principle of competence and due care imposes the following obligations to
professionals:
(a) To maintain professional knowledge and skill at the level required to ensure that
clients or employers receive competent professional services and
(b) To act diligently in accordance with applicable technical and professional
standards when offering services.
Professional competence refers to the ability to perform an audit job effectively,
efficiently and economically. It is experienced based qualification.
Professional auditors and accountants should not portray themselves as having
expertise or experience they dont possess. Professional competence may be divided
into 2 phases:
(iii)

Attainment of professional competence:

High standard of general education. For example passing professional

examinations (CPA, ACCA, or its equivalent) and ensuring proper
registration with respective accounting and auditing professional bodies.

(iv)

Relevant and adequate working experience.

Maintenance of professional competence:

Continuing awareness of the developments in the profession by attending

Continuing Professional Education program (CPE).

Appropriate trainings and supervision are regularly performed.

Quality control on performance based on pronouncement at national and

international level.

Diligence encompasses the responsibility to act in accordance with the requirements

of an assignment, carefully, thoroughly and on a timely bias.
Confidentiality
Professional accountants in business and in public practice should respect
confidentiality of information acquired during the course of performing professional
services and should not use or disclose or appear to use any such information without

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proper and specific authority or for personal advantage or advantage of the third party
unless there is a legal or professional right or duty to disclose.
The following are examples of issues which should be considered in determining the
extent to which confidential information may be disclosed:

When disclosure is authorized

When disclosure is required by law

When there is a professional duty or right to disclose

Tax practice
A professional accountant rendering tax services is entitled to put forward the best
position in favour of client, or employer, provided the service is rendered with the
professional competence, does not in any way impair the integrity and objectivity and
is consistence with the law.
The accountant should not be associated with any return or communication which can
be believed that it:

Contains a false misleading statement

Contain information furnished recklessly or without any real knowledge

Omit or obscures information which misleads the revenue authority

In preparing tax returns, a professional accountant may rely on information furnished

by the client or employer provided that the information appears reasonable.
In addition, the professional accountant should:

Make use of the clients returns for prior years whenever feasible

Make reasonable enquiries when the information presented appears to be

incorrect.

Make reference to the books and records of business operations

Cross Boarder Activities

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When considering the application of ethical principles in cross boarder activities, a
number of situations may arise. Which standards should be used in performing
audit or accounting?
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 services are being
performed are less strict than the IFAC Code of Ethics, then, 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, ethical requirements in
the country where services are performed should be applied.
(c) When the ethical requirements of the home country are mandatory for service
performed outside that country and are stricter than setout in (a) and (b) above,
then the ethical requirements of the home country should be applied.
Technical Standards
A professional accountant should carry out services in accordance with the relevant
technical and professional standards with care and skill.
In addition, they should also conform to standards set by:
(a) International Federation of Accountants (IFAC). E.g. International Standards on
Auditing
(b) International Accounting Standard Board (IASB) e.g. International Financial
Reporting Standards
(c) The members professional body or other regulatory body e.g. NBAA
(d) Relevant legislation.
THREATS TO FUNDAMENTAL PRINCIPLES OF PROFESSIONAL CODE
OF ETHICS
Compliance to the fundamental principles may potentially be affected by self-interest,
self-review, advocacy, familiarity and intimidation threats.
(i)

Self Interest Threat

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.
(ii)

Self Review Threat

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Self Review Threat occurs when (1) any product or judgment of a previous assurance
engagement or non assurance engagement needs to be reevaluated in reaching
conclusions on the assurance engagement or (2) when a member of the assurance tea
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.
(iii)

Advocacy Threat

Advocacy threat occurs when a firm, or a member of the assurance team, promotes, or
may be perceived to promote, an assurance clients position or opinion to the point
that objectivity may, or may be perceived to be, compromised. Such may be the case
if a firm or a member of the assurance team were to subordinate their judgment to that
of the client.
(iv)

Familiarity Threat

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 clients interests.
(v)

Intimidation Threat

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 of employees of an assurance client.
Examples of circumstances that may create self-interest threat include, but not limited
to:
(a) Threat of replacement over a disagreement with the application of accounting
principles and
(b) Pressure to reduce inappropriately the extent of work performed in order to reduce
fees.
How to safeguard auditors independence
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.
Independence safeguards fall into 3 broad categories:
(a) Safeguards created by the profession, legislation or regulation:

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Educational, training and experience requirements for entry into the

profession.

Continuing education requirements.

Professional standards and monitoring and disciplinary processes

External review of a firms quality control system.

Legislations governing the independence requirements of the firm.

(b) Safeguards within the assurance client:

When the assurance clients management appoints the firm, persons other than
management ratify or approve the appointment.

The assurance client has competent employees to make management

decisions.

Policies and procedures that emphasize the assurance clients commitment to

fair financial reporting.

Internal procedures ensure objective choices in commissioning non assurance

engagement, and

A corporate governance structure, such as an audit committee, that provides

appropriate oversight and communication regarding a firms service.

(c) Safeguards within the firms own systems and procedures:

Firm leadership that stresses the importance of independence and the

expectation that members of assurance teams will act in the public interest.

Policies and procedures to implement and monitor quality control of assurance

engagements.

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.

Internal policies and procedures to monitor compliance with firm policies and
procedures as they relate to independence.

Policies and procedures that will enable the identification of interests or

relationships between the firm or members of the assurance team and
assurance clients.

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Policies and procedures to monitor and, if necessary, manage the reliance on

revenue received from a single assurance client.

Using different partners and teams with separate reporting lines for the
provision of non assurance services to an assurance client.

Policies and procedures to prohibit individuals who are not members of the
assurance team from influencing the outcome of the assurance engagement.

Timely communication of the firms policies and procedures and any changes
thereto, to all partners and professional staff, including appropriate training
and education thereon.

Designation a member of senior management as responsible for overseeing the

adequate functioning of the safeguarding system.

A disciplinary mechanism to promote compliance with policies and

procedures.

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.

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