Code of Ethics for Professional Accountants Overview

Code of Ethics Part A – Framework applies to all professional accountants Part B – Professional accountants in public practice Part C – Professional accountants in business

Fundamental Principles Integrity To be straight forward and honest in all professional and business relationships Objectivity To not allow bias, conflict of interest or undue influence of others to override professional or business judgments

Fundamental Principles Professional Competence and Due Care To maintain professional knowledge and skill at the level required to ensure competent professional services based on current developments in practice, legislation and techniques To act diligently in accordance with applicable technical and professional standards

Fundamental Principles Confidentiality To refrain from disclosing confidential information acquired as a result of professional and business relationships without proper and specific authority to disclose unless there is a legal or professional right or duty to disclose To refrain from using confidential information acquired as a result of professional and business relationships for personal advantage or the advantage of third parties

Fundamental Principles Professional behavior Obligation to comply with relevant laws and regulations and avoid any action that discredits the profession

Conceptual Framework Approach – Threats and Safeguards Threats may be created by a broad range of relationships and circumstances. When a relationship or circumstance creates a threat, such a threat could compromise, or could be perceived to compromise, a professional accountant’s compliance with the fundamental principles. A circumstance or relationship may create more than one threat, and a threat may affect compliance with more than one fundamental principle. Safeguards are actions or other measures that may eliminate threats or reduce them to an acceptable level.

Conceptual Framework Approach Requires active consideration of issues Establishes basic principles Can be applied to differing circumstances Responsive to rapid change Requires judgment rather than literal interpretations encouraged by a pure rules approach

Threats Self-interest Self-review Advocacy Familiarity Intimidation Self-interest threat ─ the threat that a financial or other interest will inappropriately influence the professional accountant’s judgment or behavior . Self-review threat ─ the threat that a professional accountant will not appropriately evaluate the results of a previous judgment made or service performed by the professional accountant, or by another individual within the professional accountant’s firm or employing organization, on which the accountant will rely when forming a judgment as part of providing a current service. Advocacy threat ─ the threat that a professional accountant will promote a client’s or employer’s position to the point that the professional accountant’s objectivity is compromised. Familiarity threat ─ the threat that due to a long or close relationship with a client or employer, a professional accountant will be too sympathetic to their interests or too accepting of their work. Intimidation threat ─ the threat that a professional accountant will be deterred from acting objectively because of actual or perceived pressures, including attempts to exercise undue influence over the professional accountant.

Safeguards Two categories: Created by the profession, legislation or regulation In the work environment Safeguards created by the profession, legislation or regulation include: Educational, training and experience requirements for entry into the profession. Continuing professional development requirements. Corporate governance regulations. Professional standards. Professional or regulatory monitoring and disciplinary procedures. External review by a legally empowered third party of the reports, returns, communications or information produced by a professional accountant. For professional accountants in public practice, safeguards in the work environment comprise firm-wide safeguards and engagement-specific safeguards. Examples of firm-wide safeguards in the work environment include (additional safeguards are included in paragraph 200.12): Policies and procedures that will enable the identification of interests or relationships between the firm or members of engagement teams and clients. Policies and procedures to monitor and, if necessary, manage the reliance on revenue received from a single client. Using different partners and engagement teams with separate reporting lines for the provision of non-assurance services to an assurance client Examples of engagement-specific safeguards include (additional safeguards are included in paragraph 200.13): Having a professional accountant who was not involved with the non-assurance service review the non-assurance work performed or otherwise advise as necessary. Having a professional accountant who was not a member of the assurance team review the assurance work performed or otherwise advise as necessary. Consulting an independent third party, such as a committee of independent directors, a professional regulatory body or another professional accountant. For professional accountants in business examples of safeguards in the work environment include (additional safeguards are included in paragraph 300.14): The employing organization’s systems of corporate oversight or other oversight structures. The employing organization’s ethics and conduct programs. Recruitment procedures in the employing organization emphasizing the importance of employing high caliber competent staff. Strong internal controls. Appropriate disciplinary processes.

When safeguards are never adequate Prohibitions When safeguards are never adequate There are some situations where the threat created is so significant no safeguards could eliminate the threat or reduce it to an acceptable level. In such situations the circumstances or relationship creating the threat must be avoided.

Part B – Professional Accountants in Public Practice Professional Appointment Conflicts of Interest Second Opinions Fees and Other Types of Remuneration Marketing Professional Services Gifts and Hospitality Custody of Client Assets Objectivity – All Services Independence – Audit and Review Engagements Independence – Other Assurance Engagements

Independence for Audit and Review Engagements Firm includes network firm, except where otherwise stated Independence of mind and independence in appearance Public interest entities: additional provisions in Section 290 that reflect the extent of public interest in certain entities

Independence for Audit and Review Engagements – cont’d Documentation: conclusions regarding compliance with independence requirements, and substance of any relevant discussions that support those conclusions

Independence for Audit and Review Engagements – cont’d Financial interests Loans and guarantees Business relationships Family and personal relationships Employment with an audit client Temporary staff assignments

Independence for Audit and Review Engagements – cont’d Recent service with an audit client Serving as a director or officer of an audit client Long association of senior personnel (including partner rotation) with an audit client

Independence for Audit and Review Engagements – cont’d Provision of non-assurance services to audit clients Management responsibilities Preparing accounting records and financial statements Valuation services Taxation services Internal audit services 17

Independence for Audit and Review Engagements – cont’d Provision of non-assurance services to audit clients IT systems services Litigation support services Legal services Recruiting services Corporate finance services

Independence for Audit and Review Engagements – cont’d Fees Compensation and evaluation policies Actual or threatened litigation Reports that include a restriction on use or distribution 19

Independence for Other Assurance Engagements Assurance engagements that are not audit or review engagements Include related entities when reason to believe relevant to independence Include network firms when reason to believe relevant to independence 20

Independence for Other Assurance Engagements Assertion-based assurance engagements Independence required from assurance client (party responsible for the subject matter information, and which may be responsible for the subject matter) When client not responsible for subject matter evaluate the threats firm has reason to believe created by interests and relationships with party responsible for subject matter Direct reporting engagements Independence required from assurance client (party responsible for the subject matter)

Independence for Other Assurance Engagements Multiple responsible parties Firm may take into account whether interest or relationship with a particular responsible party creates a threat. Consider: Materiality of subject matter information (or subject matter) for which the particular responsible party is responsible Degree of public interest associated with engagement

Part C – Professional Accountants in Business Potential conflicts Preparation and reporting of information Acting with sufficient expertise Financial interests Inducements

Effective Date January 1, 2011 Transitional provisions Public interest entities Partner rotation Non-assurance services Fees – relative size Compensation and evaluation policies

International Federation of Accountants www.ifac.org