Code of Ethics
As the auditor has to be ethical in his dealings with clients, ACCA publishes guidance for its members in
its Code of Ethics and Conduct. This guidance is given in the form of fundamental principles, guidance
and explanatory notes.
The IESBA (International Ethics Standards Board for Accountants), a body of IFAC, also lays down
fundamental principles in its Code of Ethics for Professional Accountants. The fundamental principles of
the two associations are extremely similar.
Fundamental Principles
1. Integrity: Members should be straightforward and honest in all professional and business
relationships. Auditors should not knowingly be associated with reports, returns, communications or
other information where they believe that the information contains a materially false or misleading
statement.
2. Objectivity: Members should not allow bias, conflicts of interest or undue influence of others to
override professional or business judgements.
3. Professional competence and due care: to maintain professional knowledge and skill at the level
required to ensure that a client receives competent professional services, and to act diligently and in
accordance with applicable technical and professional standards.
4. Confidentiality: Members 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
There are, however, circumstances where auditors may disclose information to third parties without
first obtaining permission. These can be categorised as obligatory and voluntary disclosures.
Obligatory: Auditors are obliged to make disclosure where, for example, there is a statutory right or
duty to disclose, such as if the auditor suspects the client is involved in money laundering, terrorism
or drug trafficking in which case they must immediately notify the relevant authorities.
In addition, auditors must make disclosure if compelled by the process of law, for example under a
court order or summons, under which they are obliged to disclose information.
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, Voluntary
In certain circumstances auditors are free, as opposed to obliged, to disclose information without
obtaining the client’s permission first. These circumstances can be categorised into the four areas
below:
Public interest – An auditor may disclose information which would otherwise be confidential if
disclosure can be justified in the ‘public interest’. This would be perhaps if those charged with
governance are involved in fraudulent activities;
Protect a member’s interest – Members/auditors may disclose information to defend themselves
against a negligence action, disciplinary proceedings or if suing for unpaid fees;
Authorised by statute/laws – There are cases of express statutory provision where disclosure of
information to a proper authority overrides the duty of confidentiality;
Non-governmental bodies – Auditors may be approached by non-governmental bodies seeking
information concerning suspected acts of misconduct not amounting to a crime or civil wrong.
Disclosure should only be made to those bodies with statutory powers to compel disclosure.
5. Professional behaviour: Members should comply with relevant laws and regulations and should
avoid any action that discredits the profession.
Threats to compliance with the fundamental principles
There are five general sources of threat ( explanation of the threats are given in the table with examples
later):
1. Self-interest threat (for example, having a financial interest in a client)
2. Self-review threat (for example, auditing financial statements prepared by the firm)
3. Advocacy threat (for example, promoting shares in a listed entity when that entity is a financial
statement audit client)
4. Familiarity threat (for example, an audit team member having family at the client)
5. Intimidation threat (for example, threats of replacement due to disagreement)
The exam: Once you have identified a threat from the scenario, you will need to name the threat,
explain WHY it is a threat and tell the safeguard.
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As the auditor has to be ethical in his dealings with clients, ACCA publishes guidance for its members in
its Code of Ethics and Conduct. This guidance is given in the form of fundamental principles, guidance
and explanatory notes.
The IESBA (International Ethics Standards Board for Accountants), a body of IFAC, also lays down
fundamental principles in its Code of Ethics for Professional Accountants. The fundamental principles of
the two associations are extremely similar.
Fundamental Principles
1. Integrity: Members should be straightforward and honest in all professional and business
relationships. Auditors should not knowingly be associated with reports, returns, communications or
other information where they believe that the information contains a materially false or misleading
statement.
2. Objectivity: Members should not allow bias, conflicts of interest or undue influence of others to
override professional or business judgements.
3. Professional competence and due care: to maintain professional knowledge and skill at the level
required to ensure that a client receives competent professional services, and to act diligently and in
accordance with applicable technical and professional standards.
4. Confidentiality: Members 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
There are, however, circumstances where auditors may disclose information to third parties without
first obtaining permission. These can be categorised as obligatory and voluntary disclosures.
Obligatory: Auditors are obliged to make disclosure where, for example, there is a statutory right or
duty to disclose, such as if the auditor suspects the client is involved in money laundering, terrorism
or drug trafficking in which case they must immediately notify the relevant authorities.
In addition, auditors must make disclosure if compelled by the process of law, for example under a
court order or summons, under which they are obliged to disclose information.
Page | 20
, Voluntary
In certain circumstances auditors are free, as opposed to obliged, to disclose information without
obtaining the client’s permission first. These circumstances can be categorised into the four areas
below:
Public interest – An auditor may disclose information which would otherwise be confidential if
disclosure can be justified in the ‘public interest’. This would be perhaps if those charged with
governance are involved in fraudulent activities;
Protect a member’s interest – Members/auditors may disclose information to defend themselves
against a negligence action, disciplinary proceedings or if suing for unpaid fees;
Authorised by statute/laws – There are cases of express statutory provision where disclosure of
information to a proper authority overrides the duty of confidentiality;
Non-governmental bodies – Auditors may be approached by non-governmental bodies seeking
information concerning suspected acts of misconduct not amounting to a crime or civil wrong.
Disclosure should only be made to those bodies with statutory powers to compel disclosure.
5. Professional behaviour: Members should comply with relevant laws and regulations and should
avoid any action that discredits the profession.
Threats to compliance with the fundamental principles
There are five general sources of threat ( explanation of the threats are given in the table with examples
later):
1. Self-interest threat (for example, having a financial interest in a client)
2. Self-review threat (for example, auditing financial statements prepared by the firm)
3. Advocacy threat (for example, promoting shares in a listed entity when that entity is a financial
statement audit client)
4. Familiarity threat (for example, an audit team member having family at the client)
5. Intimidation threat (for example, threats of replacement due to disagreement)
The exam: Once you have identified a threat from the scenario, you will need to name the threat,
explain WHY it is a threat and tell the safeguard.
Page | 21
