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 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 Professional competence and due care Integrity Professional behavior Confidentiality Objectivity

Ethical threats & safeguards 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 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 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.