Professional ethics

Members should be straightforward and honest in business and professional relationships. Integrity is more than honesty. It also means sticking up for what you believe is right and following up areas of concern. For example, you would not be acting with integrity if, upon seeing what might be a fraudulent transaction you decide to not investigate it further ie you ‘turn a blind eye’.

Members should not allow bias, conflicts of interest or undue influence to interfere with their professional or business judgment. For example, if you were producing a budget that will be used for a purchaser of the business, it will be difficult to be objective as there will be an understandable desire to draft an optimistic budget.

Members must keep up-to-date with legislation, accounting standards, auditing standards and so on. Members must ensure that enough time, resources and care are devoted to tasks so that they are carried out correctly.

Accountants frequently have access to confidential information. Auditors see financial results before shareholders; accountants in business might see everyone’s remuneration. Therefore, accountants must not disclose information unless:

• They have the client’s permission to do so. For example, the audit firm might have been asked to carry out tax computations and to submit these to the tax authorities.

• There is a legal or professional right or duty to disclose information. For example, many countries have anti-money laundering legislation which compels auditors to alert the authorities if they have even a suspicion of money laundering. A right to disclose information can arise if the audit firm had to defend itself in court against allegations of negligence.

• A public duty to disclose information. The concept of public interest is not defined by statute, and an auditor would be advised to seek legal advice on these matters. For example, is there a public duty to disclose that a client pays staff below minimum wages. You might think disclosure is morally justified, but the auditor’s prime duty is to report on the financial statements, not to be a watchdog for every breach of rules and regulations.

For example, financial self-interest

For example, checking your own work and verifying your own judgments and decisions

For example, promoting a client to others

For example, personal relationships that can interfere with objectivity and professional scepticism (i.e. an attitude that includes a questioning mind and a critical assessment of evidence)

Shares in clients must not be owned by members of the audit team or their immediate family members.

Contingent fees for audit work are not permitted.

Do not accept gifts or hospitality unless their value is trivial and inconsequential.

Review fee dependence: high fees can create self-interest and intimidation threats.

For a PIE, more than 15% of the firm’s total fees for two consecutive years triggers assessment of an outside accountant’s pre-issuance review as a safeguard before the second year’s opinion; apply it if effective. This is a threat threshold, not an absolute fee cap.

If this continues for five years, cease after the fifth opinion, except the Code’s narrow public-interest exception requiring regulatory or professional-body concurrence and an outside pre-issuance review.

For a non-PIE, more than 30% for five consecutive years triggers assessment of an outside review of year five, before that opinion or after it but before year six’s opinion; repeat the assessment if dependence continues.

Payment is normally expected before the auditor’s report is issued. Assess whether significant long-overdue fees amount to a loan and whether continuing or reappointment is appropriate; consider partial payment and an independent review.

Unless it is the client’s normal business to make loans (for example, the client is a bank) and any loans are made on normal business terms, auditors should not accept loans from clients.

Simultaneous employment with the client and audit firm is not permitted. A key audit partner joining a PIE in a senior role must wait until the client has issued audited financial statements covering at least twelve months and the partner was not on the team auditing those statements.

For a non-PIE, routine or mechanical accounting services may be provided if threats are addressed, for example by using staff outside the audit team or an appropriate reviewer. Management must retain responsibility. Accounting and bookkeeping services for a PIE audit client are prohibited: immateriality and a separate team do not create the old exception.

An auditor cannot provide services that assume management responsibilities. Evaluating internal control is often an important audit procedure, so if the auditors had designed the controls they might be blind to any deficiencies – and they might be reluctant to subsequently criticise the system.

For a non-PIE, a valuation with a significant degree of subjectivity and a material effect on the financial statements is prohibited. Otherwise assess and address threats. For a PIE, do not provide a valuation service that might create a self-review threat.

Another partner should be the engagement partner (ie responsible for the audit). ‘Close relative’ is not defined. Does it include brothers and sisters, children, nephews and nieces, remote cousins? Judgment must be used and the auditor must be seen to be independent.

The only appropriate action may be to withdraw from the engagement and resign or not seek reappointment.