2. Code of Ethics for Members in Industry

3. Fundamental Principles for Professional Ethics
Integrity
Straightforward and honest
Objectivity
Unbiased and not under any influence
Professional Competence and Due Care
Maintain professional knowledge and skill at required level. Practice diligence.
Confidentiality
Not to disclose information to third parties without proper authority.
Professional Behaviour
Avoiding action that discredits the profession.

4. Threats Circumstances which threaten compliance with Fundamental Principles
Self Interest
financial or other interest of the professional or relative
Self Review
when a previous judgment needs to be re- evaluated by the professional responsible for that judgment.
Advocacy
subsequent objectivity may be compromised.
Familiarity
Too much sympathy to the interests of others, due to a relationship.
Intimidation
Actual or perceived threats, resulting as deterrents from acting objectively.

5. Safeguards to Eliminate or reduce risks to acceptable levels
1. Safeguards created by the profession, legislation or regulation
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.

6. 2. Safeguards in the work environment.
The employing organization’s systems of corporate oversight or other oversight structures.
The employing organization’s ethics and code of conduct programs.
Recruitment procedures in the employing organization emphasizing the importance of employing high caliber competent staff.
Strong internal controls.
Appropriate disciplinary processes.
Leadership that stresses the importance of ethical behaviour and the expectation that employees will act in an ethical manner.

7. 2. Safeguards in the work environment. (continued)
Policies and procedures to implement and monitor the quality of employee performance.
Timely communication of the employing organization’s policies and procedures, to all employees and appropriate training and education on such policies and procedures.
Policies and procedures to empower and encourage employees to communicate to senior levels within the employing organization any ethical issues that concern them without fear of retribution.
Consultation with another appropriate professional accountant.

8. Lets look into a Hypothetical CASE STUDY

9. Case Study A Real Estate Company
The owner, hereinafter known as Builder.
Wants to launch a township in the outskirts with more than 1000 flats in the offing.
A Housing Finance Company
Helmed by a CEO.
Desperately looking for business.
CEO facing tough market competition, real estate slowdown and BOD pressure to meet targets.

10. CEO GM - Construction Finance ( CA) AGM - CF Analyst - CF
GM - Housing Finance (CA)
AGM - HF
Analyst - HF

11. Sequence of events Builder approaches HFC for Construction Finance
CEO and GM – CF approve with less than comfortable fundamentals
This project is considered fast track and housing loans are approved hastily.
All employee CAs under tremendous pressure to perform
Loans turning into NPAs.
Whose fault is it ?

12. Circumstances which threaten compliance with Fundamental Principles
Employee
Circumstances
Threats faced
CEO
Tremendous work pressure, kickback offered by the Builder
Self Interest, Self Review, Advocacy, Intimidation
GM – Construction Finance
Pressure from CEO and approval with less than comfortable fundamentals, probable kickbacks
Self Interest, Self Review, Intimidation
GM – Housing Finance
Pressure from CEO, GM – CF to increase sales for this township to make it lucrative to potential buyers, Probable kickbacks
Manager and Analyst - CF
Preparing and recommending less than comfortable fundamental analysis for the builder’s profile.
Self Review, Advocacy, Intimidation
Manager and Analyst - HF
Sanctioning poor credit quality loans with uncomfortable ratios
Self Review, Advocacy, Intimidation, Familiarity

13. Safeguards Employee Safeguards CEO
Communicate with management for reasonable targets, get more collateral on the CF, not pressurize the subordinates to sanction poor credit quality loans, disclose financial interest ( if any) or disassociate from the organization, in extreme cases.
GM – Construction Finance
May opt for consultation with other professionals for valuing the fundamentals for CF. Try making a representation to the BOD regarding poor credit quality
GM- Housing Finance
Not get bogged down by all the pressure and sanction loans which meet required credit quality benchmark as expected by the company standards.

14. Code of Ethics 2009 on Conflicts and Safeguards
Section 310 Potential Conflicts
Section 320 Preparation and Reporting of Information
Section 330 Acting with Sufficient Expertise
Section 340 Financial Interests
Section 350 Inducements

15. Section 310 Potential Conflicts
Threats
Safeguards
Act contrary to law or regulation.
Act contrary to technical or professional standards.
Facilitate unethical or illegal earnings management strategies.
Lie to, or otherwise intentionally mislead (including misleading by remaining silent) others, in particular:
– The auditors of the employing organization; or
– Regulators.
Issue, or otherwise be associated with, a financial or non-financial report that materially misrepresents the facts, including statements in connection with, for example:
– The financial statements;
– Tax compliance;
– Legal compliance; or
– Reports required by securities regulators.
Obtaining advice where appropriate from within the employing organization,
an independent professional, advisor or a relevant professional body.
The existence of a formal dispute resolution process within the employing organization.
Seeking legal advice.

16. Section 320 Preparation and Reporting of Information
Safeguards
Threats
Should maintain information for which the professional accountant in service is responsible in a manner that:
(a) Describes clearly the true nature of business transactions, assets or liabilities;
(b) Classifies and records information in a timely and proper manner; and
(c) Represents the facts accurately and completely in all material respects.
If issuance of misleading information is either significant or persistent, the professional accountant in service should consider informing appropriate authorities
The professional accountant in service may also wish to seek legal advice or resign.
may be pressured (either externally or by the possibility of personal gain) to become associated with misleading information
significance of such threats will depend on factors such as the source of the pressure and the degree to which the information is, or may be, misleading.

17. Section 330 Acting with Sufficient Expertise
Circumstances that threaten the ability
Safeguards
Obtaining additional advice or training.
Ensuring that there is adequate time available for performing the relevant duties.
Obtaining assistance from someone with the necessary expertise.
Consulting, where appropriate, with:
– Superiors within the employing organization;
– Independent experts; or
– A relevant professional body.
Insufficient time for properly performing or completing the relevant duties.
Incomplete, restricted or otherwise inadequate information for performing the duties properly.
Insufficient experience, training and/or education.
Inadequate resources for the proper performance of the duties.

18. Section 340 Financial Interests
The Value of the interest may be directly affected by decisions made by the CA in Service - examples
Safeguards
Independent of management to determine the level and form of remuneration of senior management.
Disclosure of all relevant interests, and of any plans to trade in relevant shares to those charged with the governance of the employing organization.
Consultation, where appropriate, with superiors and relevant professional bodies.
Internal and external audit procedures.
Up-to-date education on ethical issues and the legal restrictions and other regulations around potential insider trading.
A direct or indirect financial interest in the employing organization
A profit related bonus and its could be directly affected by decisions made by him.
Direct or indirect share options in the employing organization.
Direct or indirect share options in the employing organization., eligible for conversion.
May qualify for share options in the employing organization or performance related bonuses if certain targets are achieved.

19. A professional accountant in service should neither manipulate information
nor use confidential information
for personal gain.

20. Section 350 Inducements - 1 Receiving Offers Examples Safeguards
How ??
May take various forms, including gifts, hospitality, preferential treatment and inappropriate appeals to friendship or loyalty.
How it poses as a threat ?
Self- interest threats to objectivity or confidentiality are created, once inducement is offered.
Intimidation threats to objectivity or confidentiality are created, once inducement is accepted
Where such offers have been made,
inform higher levels of management immediately
Inform third parties of the offer –
Advise relatives of relevant threats and safeguards where they are potentially in positions that might result in receiving offers of inducement

21. Section 350 Inducements - 2 Making Offers Examples Safeguards
professional accountant in service is expected to offer inducements to subordinate the judgment of another individual or organization, influence a decision- making process or obtain confidential information.
Such pressure may come from within the employing organization or
From an external individual or organization suggesting actions or business decisions that would be advantageous to the employing organization
A professional accountant in service should not offer an inducement to improperly influence professional judgment of a third party.
the professional accountant should follow the principles and guidance regarding ethical conflict resolution

22. Ethical Conflict Resolution
Relevant Facts, Ethical Issues involved, Fundamental Principles affected, Established internal procedures and Alternative courses of action
Determine the appropriate course of action so as to adhere to fundamental principles after weighing in the consequences of each possible course of action
If matter still remains unresolved, then consultation with appropriate persons should be initiated – within or outside the employing organization.
The Substance of the issue as well as other details of discussion must be documented.
If a significant conflict still remains unresolved, then the CA may obtain professional advice from relevant professional body or legal advisors.
After all relevant possibilities are exhausted and the ethical conflict remains unresolved, the CA should, where possible refuse to remain associated with the matter of conflict.

23. To sum it up Specific circumstances give rise to unique threats
Such unique threats cannot be categorized.
Professional accountants in service should always be on the alert for such circumstances and threats.
Safeguarding ourselves from threats to professional ethics and adhering to code of conduct must be of utmost importance to all of us, to protect the dignity, sanctity and reverence of our profession.
Ultimately, “The Buck stops with YOU”
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