Apes 110 code of ethics for professional accountants

Ethics And Governance.

Module 04: Professional ethics for accountants—APES 110 This module introduces the professional accountants' Code of Ethics: APES 110. It is an important document in the professional life of all professional accountants in Australia ("professional accountants" refers to members of CPA Australia or Chartered Accountants Australia & New Zealand), but one that does not receive the attention or respect it deserves.

This module serves as an introduction to the following module, which will examine some of the specific scenarios used in APES 110 to guide accountants in their professional and ethical decision-making.

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Learning Objectives

After completing this chapter, you should be able to:

1. Explain the history of the Accounting Professional Ethics Standards Board and why it exists

2. Describe the conceptual framework contained within APES 110 3. Use the APES 110 decision model to critically evaluate the existence of

threats to the fundamental principles and recommend appropriate safeguards

4. Explain the consequences of not complying with APES 110.

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APESB

It is a hallmark of a profession that it gives due regard to the standard of ethics expected of its members.

The Accounting Professional and Ethical Standards Board (APESB) was formed in 2006 by the major accounting association in Australia.

Its chief pronouncement, the APES 110 Code of Ethics for Professional Accountants, is backed by the value that society places in those accounting societies.

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APES 110

APES 110 is an ethics standard for all members of any professional body that has adopted APES 110 (known as the Code).

For practical purposes, this means at least all members of Chartered Accountants Australia and New Zealand (CA ANZ), CPA Australia and the Institute of Public Accountants (IPA).

This list can change over time as other professional associations seek the protection and guidance of APES 110.

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Structure of APES 110

The Code is divided into three sections, Parts A, B and C. Part A introduces the fundamental principles of professional practice, as well as a conceptual framework that helps members to:

• Identify threats to the fundamental principles • Evaluate the significance of the threats, and • Apply safeguards where necessary to either eliminate the threats,

or reduce them to an acceptable level.

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Parts B & C

Parts B and C of the Code provide examples of how the framework applies in the specific situations of public practice, in auditing and assurance services, and for members in business in general. These examples can be quite detailed, but all refer to the basic workings of the framework explained in Part A.

The exception to this is the part of the Code that deals specifically with auditing and assurance services: this part introduces an additional fundamental principle: Independence.

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Conceptual framework: the fundamental principles The Code contains five essential principals (referred to in APES as the fundamental principles) that all professional accountants should aspire towards. They are:

1. Integrity 2. Objectivity 3. Professional skill and due care 4. Confidentiality 5. Professional Behaviour.

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Integrity

Integrity is the requirement to be straightforward and honest in your dealings, to not have anything to hide. A person of integrity "says what they mean, and means what they say". Integrity is the bedrock of every successful and respected accountant.

Make sure people will always recognise you as a person of integrity, and never give anyone an opportunity to doubt it.

The Code impresses upon all professional accountants 'to be straightforward and honest in all professional and business relationships. Integrity also implies fair dealing and truthfulness' (APES 110, p. 17).

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Objectivity

Objectivity is a key virtue of professional accountants. Accountants should not be guided by emotion, bias, or under any undue influence from others. Judgements should be evidence-based.

The Code links objectivity to the idea of professional judgement. A threat to objectivity means that professional judgment can be compromised due to bias, conflict of interest or undue influence. This must not be allowed to happen. The Code sets this out in paragraphs 120.1–120.2.

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Professional skill & due care

The core ethical duty of any professional is to be able to do what they hold themselves out as being able to do. This is a variation of the integrity principle.

The Accounting profession takes professional competence very seriously. Section 130 sets out the principle of professional competence in more detail. The obligations placed on Members are:

1. To maintain professional knowledge and skill at the level required to ensure that clients or employers receive competent Professional Service; and

2. To act diligently in accordance with applicable technical and professional standards when providing Professional Services (APES 110, p. 19).

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Confidentiality

Would you be able to do business with a professional if you knew that everything you told that person, every document you provided, could be made publicly available? I don't think so.

No, to do business with someone you trust means you conduct your business in private, secure in the knowledge that the professional person will respect your privacy and confidentiality. Your commercial dealings will be safe.

The requirement to comply with the principle of confidentiality continues even after the Member-client or Member-employer relationship has finished. However, there are times when a Member is expected to break this principle, and this is explained further in Section 140 of the Code.

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Professional behaviour

It is not sufficient to have the appropriate knowledge to be a professional accountant, you have to behave, or act like one too. That means your dealings with clients and colleagues will be respectful, courteous, and that you will have due respect for laws, customs and practices expected of you.

It is important that you do not do anything that brings the profession into disrepute. The professional accounting associations have taken very dim views of this behaviour, regardless of whether anything illegal has been done.

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Conceptual framework: threats to the fundamental principles Much of the Code is about describing the risks, or threats to these principles that will be found in professional life, whether as an accountant or an auditor, or in business in general. These threats are described in great detail, together with many scenarios provided to help you to recognise them in practice. What to do about them? The Code can help you with that too.

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The five threats

There are five threats to the fundamental principles:

1. Self-Interest 2. Self-review 3. Advocacy 4. Familiarity 5. Intimidation

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The self-interest threat

A member's judgment or behaviour could be inappropriately influenced by something that tempts the member to consider his or her own self-interest rather than the public interest.

For example, a corporate accountant may choose a re-evaluation of an asset with the motivation of presenting the a true and fair valuation on the balance sheet, or the motivation might be to boost profits to meet investor expectations and therefore result in a nice bonus for the accountant.

In either case, the re-evaluation may very well be within the scope of the accounting standards, but the second instance is definitely a problem for the integrity of that accountant.

A safeguard might be for the accountant or organisation to avoid financial rewards based on financial outcomes.

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The self-review threat

It is true that a person cannot objectively review and evaluate his or her own work, and this is the basis of this threat.

Although of special concern to those engaged in audit and other assurance services, it also applies to all Members. Trying to review your own work, or the work of those people you work with, undermines the principle of objectivity.

Of course, the threat exists not only from trying to evaluate your own work and the work of your immediate colleagues, but also any other member in the Member's firm or employing organisation.

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The advocacy threat

This is the threat that a Member will simply become a salesperson for the client or employer, at the expense of the Member's own professional judgment and objectivity.

An example of this might be a situation where a Member feels that he or she should promote a client's business to potential investors, knowing that the accounts may not be as healthy as they are made out to be.

A Member is not required to disclose any details of a client's business to third parties, but neither should the Member become an advocate.

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The familiarity threat

This is a very subtle threat and is closely related to the advocacy and self-interest threats. Essentially, Members in a long-term commercial relationship with a client or employer might start to associate more closely with the interests of that client or employer than to the public interest.

That this has been identified as a threat has uncomfortable implications for Members who have been with the same employer for many, many years. After a while, the interests of the employer and the public become indistinguishable.

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The intimidation threat

This is the threat that a Member will feel induced or pressured to act other than in the public interest. In other words, this is a direct threat to a Member's objectivity.

The threat may be real or only perceived, and it may not involve anything illegal.

An example of this might be a Member who feels, from conversations with peers and senior management, that if the company accounts were actually a "true and fair view", then the company's value would tumble and shareholders would lose out.

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Conceptual framework: the safeguards

Whenever a risk or threat is identified, and you conclude that the threat is significant (i.e. it is not at an acceptable level of risk to the fundamental principles of the Code), you have two options:

1. Apply appropriate safeguards (counter measures) until the threat is removed or at least reduced to an acceptable level, or

2. Remove the threat by not undertaking the job or removing yourself from the team that is undertaking the job.

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There are several levels of safeguards available

Safeguards can exist at:

1. The regulatory or professional level (knowledge of APES 110 is one example of a safeguard at the professional level)

2. The work environment level (for example, the existence of useful policies, procedures or anonymous hotlines for seeking advice)

3. The personal level (by having a strong sense of what is ethical).

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The decision model

The decision model provided in the Code is a simple formulation to assist any Member who feels that the fundamental principles may be threatened by a situation, a client engagement or workplace decision. The model from the Code is restated in the following slide.

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The decision model: a multi-step model

1. Consider the relevant factors that relate to the perceived threat. They may be: 1. Any relevant facts 2. Any ethical issues that may be involved 3. Identify the fundamental principles under threat 4. Find out if there are any established policies/procedures that can guide you, and 5. What alternative courses of action are available to you?

2. What are the consequences for each possible course of action? 3. Choose the most appropriate course of action. 4. If there is still no satisfactory resolution, you may

1. Find an appropriate person within the firm with whom to consult. 2. If a conflict exists with or within an organisation, the Member may have to consult with Those Charged with Governance of the organisation (for example, this could be

Board of Directors, Audit Committee, senior executives). 5. If still no resolution, a Member should consider consulting with his or her professional association and/or from legal advisors. 6. If after every avenue is exhausted and the Member perceives that the threat remains, the Member should, if possible, remove himself/herself from the matter causing

the conflict and threat. 7. At all time, the Member should document every stage and every decision of the process. 8. the decision model brings us to the hard fact that if a threat cannot be resolved, the Member must take active steps to remove himself or herself from the situation.

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The Safeguards Matrix This matrix will be used in the following module.

Principles\Threats Self-interest Self-review Advocacy Familiarity Intimidation

Integrity

Objectivity

Professional competence

Confidentiality

Professional behaviour

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