ACCA AAA · Chapter 4
Professional Ethics
Your chapter at a glance. Open any section, or keep the whole map in view.
Principles and framework
Ethical judgment identify, evaluate, address
Integrity and objectivity
- Be straightforward and honest
- Avoid bias, conflicts and undue influence on judgment
Competence and due care
- Maintain knowledge and skill; act diligently
Confidentiality
- Protect information acquired in professional relationships
Professional behaviour
- Comply with requirements; avoid discrediting the profession
Independence in assurance
- Mind: conclude free from compromising influences
- Appearance: withstand informed third-party scrutiny
Identify
- Consider activities, interests, relationships, roles and services
- Reassess new facts; absence of a ban is not permission
Evaluate
- Apply the reasonable and informed third-party test
Assess significance
- Consider role, materiality, subjectivity, closeness and duration
- Consider public interest and combined effects of threats
Address
- Eliminate source, apply an effective safeguard or end activity
- Reassess if circumstances change
Self-interest
- Financial or other interests may influence judgment
Self-review
- Assessing work previously done by the accountant or firm
Advocacy
- Promoting the client’s position compromises objectivity
Familiarity
- Close or long relationships weaken scepticism
Intimidation
- Pressure deters objective judgment
Management responsibility (NOT separate category)
- Prohibited for audit clients
- Often self-review and self-interest; not a separate category
Financial interests and loans
- Who holds the interest; direct or indirect; role and materiality
- Loan terms and whether lending is the client’s ordinary business
Fees and inducements
- Dependency, overdue or inadequate fees, contingent outcomes
- Gifts require trivial and inconsequential value; assess intent
Relationships
- Closeness, client influence and audit team role
- Former employment, prospective employment and long association
Explain the mechanism
- State which principle is threatened and why
- Evaluate significance; naming a category alone is insufficient
Independence issues and exam application
Prohibition first safeguards only for permitted work
Financial interest
- Firm and team: no direct or material indirect interest
- Same restriction applies to immediate family
Fees
- Contingent audit fee prohibited; overdue fee may resemble a loan
- Low fee needs adequate time and competent staff
Gifts and close relationships
- Accept only trivial, inconsequential gifts without improper intent
- Remove affected team member where close relationship is significant
Long association at a PIE
- Key audit partner generally limited to seven cumulative years
- Cooling off: partner 5; quality reviewer 3; other key partner 2
Non-assurance services
- Check prohibition before evaluating safeguards
- PIE: no service which might create a self-review threat
Management decisions
- Client management makes judgments and oversees the service
- Management accepts responsibility for resulting action
Advocacy
- Promoting or underwriting client securities is prohibited
- Material advocacy in a dispute may be prohibited
Conflicts of interest
- Assess conflict and risk of confidential information misuse
- Seek consent where appropriate or decline unresolved work
No safeguard for a prohibition
- Remove prohibited interest, gift, fee basis or service
- Decline audit if the circumstance cannot be removed
Possible safeguards for permitted work
- Remove or rotate personnel; independent review
- Separate teams; restrict information; add expertise or time
Test effectiveness
- Does the action address this threat before judgment?
- Is the reviewer competent and objective?
- Would an informed third party accept the remaining threat?
Key distinction
- Separate teams cannot make prohibited work permissible
Develop the complete chain
- Scenario fact → threat/principle → significance → action
- Evaluate whether the work or arrangement is prohibited first
Recommend a specific response
- Remove the source or show why a safeguard will work
- Decline or discontinue if no effective action is possible
Example: sustainability report
- Firm choosing measures assumes management responsibility
- Assuring its own judgments creates self-review
- A favourable-result audit fee is prohibited even with separate teams
Sequence
- Scenario fact → Identify the issue → Evaluate its significance → Recommend appropriate response
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