Chapter10
Professional ethics
Corporate code of ethics
• An ethical code contains a series of statements
setting out the corporation’s values and
explaining its responsibilities towards
stakeholders.
• Ethical code is important, but merely issuing a
code is not enough.
• The code may have many problems:
inflexibility, clarity and irrelevancy.
Purpose of ethic code
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Establishment of organization’s values
Promotion of stakeholder responsibilities
Control of individual behavior
Promotion of business objectives (strategy)
Conveying values to stakeholders
Profession code of ethics
• Codes proposed by IFAC and ACCA
• Accountancy profession accept that they have
the responsibility to act in the public interest
• The guidance begins with fundamental
principles of ethics
• The guidance supplies a conceptual
framework
• Threats to compliance, and safeguards to
eliminate the threats
Fundamental principles of professional ethics
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Professional competence and due care
Integrity
Professional behavior
Confidentiality
Objectivity
Ethical threats & safeguards
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Self-interest
Self-review
Advocacy
Familiarity
Intimidation
Ethical safeguards created by the professional,
legislation or regulation, and in the firm’s own
systems and procedures
Independence of professional accountant
• Independence is most important for
accountants acting as auditors and assurance
providers.
• Reasons for the importance: reliability of
financial information, credibility of financial
information, value for money of audit work,
threats to professional standards.
Self-interest threat
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Financial interest
Close business, family or personal relationships
Employment with client
Partner on client board
Gifts and hospitality
Loans and guarantees
Overdue and percentage or contingent fees
High percentage of fees and lowballing
Self-review threat
• An assurance firm provides services other than
assurance services to an assurance client.
• The rules about public companies and private
companies are different.
• The jurisdiction in USA is stricter than UK.
• Recent service with an assurance client
• General services: of financing activities
• Accounting records and financial statements
Self-review threat
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Valuation services
Taxation services
Internal audit services (Sarbanes-Oxley)
Corporate finance
Other services
Other threats to independence
• Advocacy threat: the assurance firm is in a
position of taking the client’s part in a dispute or
acting as their advocate.
• Familiarity threat: the audit firm and its staff
become over familiar with the client and its staff.
This threat is connected with self-interest threat.
• Intimidation threat: members of the assurance
team have reason to be intimidated by client
staff.
Conflicts of interest
• Conflict of interest could result in the ethical
code being breached.
• Conflicts of interest between members and
clients, and between different clients.
Individuals also face their own conflicts of
interest.
• Many safeguards can be used.
Problems facing accountants
• Conflicts between professional and employment
obligations
• Preparation and reporting for information
• Acting with sufficient expertise
• Financial interests
• Inducements
• Bribery and corruption in businesses
The accountancy profession
• Professional accountants have the obligation to
comply with relevant laws and regulations, and
avoid any action that may bring discredit to the
profession.
• They face many problems in business, like
conflicts of obligations, misleading information,
lack of expertise, financial interests and
inducements.
The accountancy profession
• Accountants’ responsibility is not only to satisfy
the needs of individual clients or employer, but
also to satisfy the public interest (stakeholders).
• Public interest is the collective well-being of
the community of people and institutions the
professional accountant serves, these people and
institutions are relying on the work of
professional accounts.
The usefulness of accountancy
• Accountancy provides accounts which can be
used to judge the performance of the company
or the directors in line with regulations, and can
influence the judgement of their users.
• Accountancy produces information for
individuals or corporations seeking to maximize
their personal wealth equally. – liberal economic
democracy
• There’re many criticism, too.