Code of Ethics for
Members in Industry
Fundamental Principles for
Professional Ethics
Integrity
Objectivity
• Straightforward and honest
• Unbiased and not under any influence
Professional Competence • Maintain professional knowledge and
skill at required level. Practice diligence.
and Due Care
Confidentiality
• Not to disclose information to third
parties without proper authority.
Professional Behaviour
• Avoiding action that discredits the
profession.
Threats
Circumstances which threaten
compliance with Fundamental
Principles
Self Interest
• financial or other interest of the
professional or relative
Self Review
• when a previous judgment needs to be
re- evaluated by the professional
responsible for that judgment.
Advocacy
• subsequent objectivity may be
compromised.
Familiarity
• Too much sympathy to the interests of others,
due to a relationship.
Intimidation
• Actual or perceived threats, resulting as
deterrents from acting objectively.
Safeguards to Eliminate or reduce risks to
acceptable levels
1. Safeguards created by the profession, legislation or regulation
• Educational, training and experience
requirements for entry into the
profession.
• Continuing professional development
requirements.
• Corporate governance regulations.
• Professional standards.
• Professional or regulatory monitoring
and disciplinary procedures.
• External review by a legally empowered
third party of the reports, returns,
communications or information
produced by a professional accountant.
2. Safeguards in the work environment.
• The employing organization’s systems of
corporate oversight or other oversight
structures.
• The employing organization’s ethics and code
of conduct programs.
• Recruitment procedures in the employing
organization emphasizing the importance of
employing high caliber competent staff.
• Strong internal controls.
• Appropriate disciplinary processes.
• Leadership that stresses the importance of
ethical behaviour and the expectation that
employees will act in an ethical manner.
2. Safeguards in the work environment. (continued)
•
Policies and procedures to implement and
monitor the quality of employee
performance.
• Timely communication of the employing
organization’s policies and procedures, to all
employees and appropriate training and
education on such policies and procedures.
• Policies and procedures to empower and
encourage employees to communicate to
senior levels within the employing
organization any ethical issues that concern
them without fear of retribution.
• Consultation with another appropriate
professional accountant.
Lets look into a Hypothetical CASE STUDY
Case Study
• A Real Estate Company
• The owner, hereinafter
known as Builder.
• Wants to launch a township
in the outskirts with more
than 1000 flats in the offing.
• A Housing Finance Company
• Helmed by a CEO.
• Desperately looking for
business.
• CEO facing tough market
competition, real estate
slowdown and BOD
pressure to meet targets.
CEO
GM Construction
Finance ( CA)
GM - Housing
Finance (CA)
AGM CF
AGM HF
Analyst CF
Analyst HF
Sequence of events
Builder approaches
HFC for Construction
Finance
CEO and GM – CF
approve with less
than comfortable
fundamentals
This project is
considered fast track
and housing loans
are approved hastily.
Loans turning into
NPAs.
All employee CAs
under tremendous
pressure to perform
Whose fault is it ?
Circumstances which threaten compliance with
Fundamental Principles
Employee
Circumstances
Threats faced
CEO
Tremendous work pressure,
kickback offered by the Builder
Self Interest, Self Review,
Advocacy, Intimidation
GM – Construction
Finance
Pressure from CEO and
approval with less than
comfortable fundamentals,
probable kickbacks
Self Interest, Self Review,
Intimidation
GM – Housing
Finance
Pressure from CEO, GM – CF to Self Interest, Self Review,
increase sales for this township Intimidation
to make it lucrative to potential
buyers, Probable kickbacks
Manager and
Analyst - CF
Preparing and recommending
less than comfortable
fundamental analysis for the
builder’s profile.
Self Review, Advocacy,
Intimidation
Manager and
Analyst - HF
Sanctioning poor credit quality
loans with uncomfortable
ratios
Self Review, Advocacy,
Intimidation, Familiarity
Safeguards
Employee
Safeguards
CEO
Communicate with management for reasonable targets,
get more collateral on the CF, not pressurize the
subordinates to sanction poor credit quality loans,
disclose financial interest ( if any) or disassociate from
the organization, in extreme cases.
GM – Construction Finance May opt for consultation with other professionals for
valuing the fundamentals for CF. Try making a
representation to the BOD regarding poor credit quality
GM- Housing Finance
Not get bogged down by all the pressure and sanction
loans which meet required credit quality benchmark as
expected by the company standards.
Code of Ethics 2009
on Conflicts and Safeguards
• Section 310 Potential Conflicts
• Section 320 Preparation and Reporting of
Information
• Section 330 Acting with Sufficient Expertise
• Section 340 Financial Interests
• Section 350 Inducements
Section 310 Potential Conflicts
Threats
•
•
•
•
•
•
•
•
•
•
Act contrary to law or regulation.
Act contrary to technical or professional standards.
Facilitate unethical or illegal earnings management
strategies.
Lie to, or otherwise intentionally mislead (including
misleading by remaining silent) others, in particular:
– The auditors of the employing organization; or
– Regulators.
Issue, or otherwise be associated with, a financial or
non-financial report that materially misrepresents
the facts, including statements in connection with,
for example:
– The financial statements;
– Tax compliance;
– Legal compliance; or
– Reports required by securities regulators.
Safeguards
• Obtaining advice
where appropriate
from within the
employing
organization,
• an independent
professional, advisor
or a relevant
professional body.
• The existence of a
formal dispute
resolution process
within the employing
organization.
• Seeking legal advice.
Section 320 Preparation and Reporting
of Information
Threats
•
•
may be pressured
(either externally or by
the possibility of
personal gain) to
become associated with
misleading information
significance of such
threats will depend on
factors such as the
source of the pressure
and the degree to which
the information is, or
may be, misleading.
Safeguards
•
•
•
•
•
•
Should maintain information for which the
professional accountant in service is responsible in
a manner that:
(a) Describes clearly the true nature of business
transactions, assets or liabilities;
(b) Classifies and records information in a timely
and proper manner; and
(c) Represents the facts accurately and completely
in all material respects.
If issuance of misleading information is either
significant or persistent, the professional
accountant in service should consider informing
appropriate authorities
The professional accountant in service may also
wish to seek legal advice or resign.
Section 330 Acting with Sufficient
Expertise
Circumstances that threaten the
ability
• Insufficient time for properly
performing or completing the
relevant duties.
• Incomplete, restricted or
otherwise inadequate
information for performing the
duties properly.
• Insufficient experience,
training and/or education.
• Inadequate resources for the
proper performance of the
duties.
Safeguards
• Obtaining additional advice or
training.
• Ensuring that there is adequate
time available for performing the
relevant duties.
• Obtaining assistance from
someone with the necessary
expertise.
• Consulting, where appropriate,
with:
• – Superiors within the employing
organization;
• – Independent experts; or
• – A relevant professional body.
Section 340
Financial Interests
The Value of the interest may be directly
affected by decisions made by the CA in
Service - examples
•
•
•
•
•
A direct or indirect financial interest
in the employing organization
A profit related bonus and its could
be directly affected by decisions
made by him.
Direct or indirect share options in the
employing organization.
Direct or indirect share options in the
employing organization., eligible for
conversion.
May qualify for share options in the
employing organization or
performance related bonuses if
certain targets are achieved.
Safeguards
•
•
•
•
•
Independent of management to
determine the level and form of
remuneration of senior management.
Disclosure of all relevant interests,
and of any plans to trade in relevant
shares to those charged with the
governance of the employing
organization.
Consultation, where appropriate,
with superiors and relevant
professional bodies.
Internal and external audit
procedures.
Up-to-date education on ethical
issues and the legal restrictions and
other regulations around potential
insider trading.
• A professional accountant in service should
neither manipulate information
nor use confidential information
for personal gain.
Receiving Offers
Examples
Section 350
Inducements - 1
• How ??
May take various forms, including
gifts, hospitality, preferential
treatment and inappropriate
appeals to friendship or loyalty.
• How it poses as a threat ?
• Self- interest threats to
objectivity or confidentiality are
created, once inducement is
offered.
• Intimidation threats to objectivity
or confidentiality are created,
once inducement is accepted
Safeguards
Where such offers have been made,
• inform higher levels of management
immediately
• Inform third parties of the offer –
• Advise relatives of relevant threats
and safeguards where they are
potentially in positions that might
result in receiving offers of
inducement
Making Offers
Section 350
Inducements - 2
Examples
• professional accountant in service is
expected to offer inducements to
subordinate the judgment of another
individual or organization, influence a
decision- making process or obtain
confidential information.
• Such pressure may come from within the
employing organization or
• From an external individual or organization
suggesting actions or business decisions
that would be advantageous to the
employing organization
Safeguards
• A professional
accountant in service
should not offer an
inducement to
improperly influence
professional judgment of
a third party.
• the professional
accountant should
follow the principles and
guidance regarding
ethical conflict
resolution
Ethical Conflict Resolution
Relevant Facts, Ethical Issues involved, Fundamental Principles affected,
Established internal procedures and Alternative courses of action
Determine the appropriate course of action so as to adhere to fundamental principles
after weighing in the consequences of each possible course of action
If matter still remains unresolved, then consultation with appropriate persons should
be initiated – within or outside the employing organization.
The Substance of the issue as well as other details of discussion must be documented.
If a significant conflict still remains unresolved, then the CA may obtain professional
advice from relevant professional body or legal advisors.
After all relevant possibilities are exhausted and the ethical conflict remains
unresolved, the CA should, where possible refuse to remain associated with the
matter of conflict.
To sum it up
• Specific circumstances give rise to unique threats
• Such unique threats cannot be categorized.
• Professional accountants in service should always be on the
alert for such circumstances and threats.
• Safeguarding ourselves from threats to professional ethics and
adhering to code of conduct must be of utmost importance to
all of us, to protect the dignity, sanctity and reverence of our
profession.
Ultimately, “The Buck stops with YOU”
Build Ethics in your DNA