Ch 6 professional accounting in the public interest

 Provision of important fiduciary services to society – use of fiduciary per text  Extensive knowledge and skill are required  Training and skills required are largely intellectual in

WHAT MAKES A PROFESSION

 Extensive training

 Provision of important services to society

 Training and skills largely intellectual in character

Typical Features

 Generally licensed or certified

 Represented by organisations, associations, or institutes

 Autonomy

 Significantly delineated by and founded on ethical considerations rather than techniques or tools

 Provision of important fiduciary services to society – use of fiduciary per text

 Extensive knowledge and skill are required

 Training and skills required are largely intellectual in character

 Overseen by self-regulating membership organisations

 Accountable to governmental authority

Duties essential to a fiduciary relationship

 Continuing attention to the needs of clients and other stakeholders

 Development and maintenance of required knowledge and skills, including professional scepticism

 Maintenance of the trust inherent in a fiduciary relationship by behaviour exhibiting responsible values

 Maintenance of an acceptable personal reputation

 Maintenance of a credible reputation as a profession

Rights permitted in most jurisdictions

 Ability to hold oneself out as a designated professional to render important fiduciary services

 Ability to set entrance standards and examine candidates

 Self-regulation and discipline based on codes of conduct

 Participation in the development of accounting and audit practice

 Access to some or all fields of accounting and audit endeavour

Values necessary to discharge duties and maintain rights

 Honesty

 Integrity

 Objectivity, based on independent judgement

 Desire to exercise due care and professional scepticism

 Competence

 Confidentiality

 Commitment to place the needs of the public, the client, the profession, and the employer or firm before the

professional's own self-interest

NATIONAL & INTERNATIONAL ACCOUNTING

ORGANIZATIONS OPERATING IN NORTH AMERICA

American Institute of Certified

Public Accountants (AICPA)

CPA Auditing, management

accounting

United States, some Canadian

provinces Institute of Management

Accountants (IMA)

CMA Management

accounting

United States

Canadian Institute of Chartered

Accountants (CICA)

CA Auditing, management

accounting

Canada

Society of Management

Accountants of Canada (SMAC) CMA Management accounting Canada

Certified General Accountants

Association of Canada (CGAAC)

CGA Management accounting,

auditing

Canada, some provinces

FOR PROFESSIONAL ACCOUNTANTS

Members should:

 act in the public interest,

 at all times maintain the good reputation of the profession and its ability

to serve the public interest,

 perform with:

 integrity

 objectivity & independence

 professional competence, due care, and professional skepticism

 confidentiality, and

 not be associated with any misleading information or misrepresentation.

A professional accountant is required to comply with the following fundamental principles:

(a) Integrity - A professional accountant should be straightforward and honest in all professional

and business relationships.

(b) Objectivity - A professional accountant should not allow bias, conflict of interest or undue

influence of others to override professional or business judgments.

(c) Professional Competence and Due Care - A professional accountant has a continuing duty to

maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments in

practice, legislation and techniques A professional accountant should act diligently and in accordance with applicable technical and professional standards when providing

professional services.

(d) Confidentiality - A professional accountant should respect the confidentiality of information

acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority unless there is a legal

or professional right or duty to disclose Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of the professional accountant or third parties.

(e) Professional Behavior - A professional accountant should comply with relevant laws and

regulations and should avoid any action that discredits the profession.

IFAC 2005 CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS

FUNDAMENTAL PRINCIPLES – SECTION 100.4

ACCOUNTING CODES OF CONDUCT & REGULATORY AUTHORITIES

LEVIABLE ON THE PROFESSIONAL ACCOUNTING FIRM

Suspension:

 for a specified period

 for an indefinite period

 until specific requirements are completed

 from appearing before regulatory agencies (SEC, OSC)

 from auditing SEC or OSC registrant companies

Yes Yes Yes Yes Yes

No/Yes*

No No Yes Yes

Ancillary orders

 for community work

 financial support, etc.

Yes Yes

No Yes

* The SEC has suspended a firm’s ability to audit SEC registrants and/or take on new clients

Source: Distillation of discipline cases from North American jurisdictions

THE MACDONALD COMMISSION:

OVERVIEW OF PRINCIPAL RECOMMENDATIONS

Recommendations to strengthen auditor independence/integrity:

 Improvement of auditor relationships (#11)

 Strengthen professional standards (7)

 Strengthen professional code of conduct (3)

Recommendations to strengthen auditor professionalism:

 Increase responsiveness to public concerns (6)

 Emphasize vital role of professional judgment (4)

 Improve self-regulation (2)

Recommendations to improve financial disclosure:

 Expand accounting standards and improve financial disclosures (13)

 Greater auditor responsibility for those disclosures (2)

Recommendations to lessen public misunderstanding of the auditor's role:

 Publish a statement of management responsibility (24)

 Expand audit report to clarify auditor's role and the level of assurance

the audit provides (25)

 Audit committee to report annually to shareholders (3)

SOURCE: The Macdonald Commission: Report of the Commission to Study the Public's Expectation of Audits, CICA, Toronto, June 1988.

IFAC 2005 CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS FRAMEWORK – CONTENTS

Page

PREFACE 2

PART A: GENERAL APPLICATION OF THE CODE 100 Introduction and Fundamental Principles 4

110 Integrity 9

120 Objectivity 10

130 Professional Competence and Due Care 11

140 Confidentiality 12

150 Professional Behavior 14

PART B: PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE 200 Introduction 16

210 Professional Appointment 21

220 Conflicts of Interest 24

230 Second Opinions 26

240 Fees and Other Types of Remuneration 27

250 Marketing Professional Services 29

260 Gifts and Hospitality 30

270 Custody of Clients Assets 31

280 Objectivity–All Services 32

290 Independence–Assurance Engagements 33

PART C: PROFESSIONAL ACCOUNTANTS IN BUSINESS 300 Introduction 79

310 Potential Conflicts 83

320 Preparation and Reporting of Information 85

330 Acting with Sufficient Expertise 86

340 Financial Interests 87

350 Inducements 89

DEFINITIONS 91

EFFECTIVE DATE 95

IFAC 2005 CODE OF ETHICS FRAMEWORK

Duty to Society ,

Serve the Public Interest

Compliance with Fundamental Principles

Integrity, Objectivity Professional Competence & Due Care Confidentiality, Professional Behavior

Threats to Compliance with Fundamental Principles

Identify, Evaluate, Eliminate or Reduce Threats to Acceptable Levels by Applying Safeguards And Resolving any Conflicts in Application Threats (S 100.10) Safeguards (S 100.11 & 12)

Self-Interest, Self-review Professional Codes, Training or Standards Advocacy, Familiarity, Intimidation Legislation, Regulation, In Client, Firm or Business

Source: IFAC Code of Ethics for Professional Accountants, June 2005 (Section number).

(S 100.1)

(S 100.4)

(S 100.5) (S 100.16)

Compliance with fundamental principles may be threatened by a broad range of

circumstances Many threats fall into the following categories:

(a) Self-interest threats, which may occur as a result of the financial or other

interests of a professional accountant or of an immediate or close family member;

(b) Self-review threats, which may occur when a previous judgment needs to be

reevaluated by the professional accountant responsible for that judgment; (c) Advocacy threats, which may occur when a professional accountant

promotes a position or opinion to the point that subsequent objectivity may

be compromised;

(d) Familiarity threats, which may occur when, because of a close relationship, a

professional accountant becomes too sympathetic to the interests of others; and

(e) Intimidation threats, which may occur when a professional accountant may

be deterred from acting objectively by threats, actual or perceived.

IFAC 2005 Code of Ethics for Professional Accountants, Section 100.10

SAFEGUARDS REDUCING THE RISK OF CONFLICT OF INTEREST SITUATIONS

Safeguards Created by the Profession, Legislation, or Regulation

 Education, training, experience requirement for entry

 Continuing education

 Professional standards, monitoring, and disciplinary processes

 External review by a legally empowered third party of the reports, returns, communications or information produced by a professional accountant.

 External review of firm’s quality control system

 Legislation governing independence requirements of the firm

IFAC Code, S 100.12

Safeguards Within a Client

 Appointment of auditors ratified/approved by other than management

 Client has competent staff to make managerial decisions

 Internal procedures to ensure objective choices in commissioning non-assurance engagements

 A corporate governance structure, such as the audit committee, that provides appropriate oversight and

communications regarding a firm’s services

IFAC Code, 200.15

Safeguards Within a Professional Accounting Firm’s Own Systems and Procedures

 Leadership stressing importance of independence, and expectation of service/action in the public interest

 Policies and procedures to implement and monitor control of assurance engagements

 Documented independence policies regarding the identification and evaluation of threats to independence; applications of safeguards to eliminate or reduce those threats to an acceptable level

 Policies and procedures to monitor and manage the reliance on revenue from a single assurance client

 Using partners with separate reporting lines for the provision of non-assurance services to an assurance client

 Six other firm-wide and nine other specific items

IFAC Code, 200.12

Protect the Public Interest Professional Service to Clients

Independent Judgment

Independence of Mind and Appearance

Professional Skepticism

Source: IFAC Code of Ethics for Professional Accountants, 2005, S 290.8 & Independence Definition

(S 290.8)

CONFLICTS OF INTEREST FOR PROFESSIONAL ACCOUNTANTS:

CATEGORIES, SPHERES OF ACTIVITY AFFECTED, AND EXAMPLES

STAKEHOLDER

CATEGORY

SPHERE OF ACTIVITY

Self vs others Services offered

Improper use of influence Misuse of information

Conflicting services, shaving quality Improper purchases of client goods Improper investments by relatives

Self & others

vs others Services offered Overinvolvement with management or directors erodes objectivity

Client vs client

Employer vs employer Services offered Serving competing clients at the same time

Stakeholder

vs stakeholder

Misuse of information (confidentiality)

Whistle-blowing, reporting to government or regulators