Ethical and Professional Issues

Ethics-It is a set of moral principles to guide behaviour. Ethics is a code of moral principles that
people follow with respect to what is right or wrong. Ethical principles are not necessarily
enforced by law, although the law incorporates moral judgements (murder is wrong ethically,
and is also punishable legally).
The ethical environment refers to justice, respect for the law and a moral code. The conduct of
an organization, its management and employees will be measured against ethical standards by
the customers, suppliers and other members of the public with whom they deal.
Ethics in organizations relates to social responsibility and business practice.
 Acting in the public interest by
 Fundamental ethical principles are obligations placed on members of a profession, in
this case accountancy profession to ensure they act in the interest of the public.
1. Integrity
This principle entails that a professional accountant should be straightforward and
honest in all professional and business relationships. It also implies fair dealing and
truthfulness. Any attempt to conceal or hide transactions, through omitting them or
through inadequate or confusing disclosure, demonstrates a lack of integrity.
Actions that entail breach of principle
When accountant presents false information in accounts with full consent of its
falsehood or omits information from accounts knowing very well that users are likely to
be misled by such omission.
2. Objectivity
A professional accountant should not allow bias, conflict of interest or undue influence
of others to override professional or business judgements. This means an accountant is
obliged not to compromise their professional or business judgement because of
influence of others especially their supervisors.
Actions that entail breach of principle
If a supervisor to an accountant is entailed to a bonus based on a particular performance
of the reports and entices the accountant to massage figures with a promise to share
bonus with them.
3. Professional competence and due care
A professional accountant has a continuing duty to maintain professional knowledge and
skill at the level required to ensure that a client or employer receives competent
professional service based on current developments in practice, legislation and
techniques. A professional accountant should act diligently and in accordance with
applicable technical and professional standards when providing professional service.
Actions that entail breach of principle
An accountant who shows ignorance of technical knowledge and or advises client
wrongly purporting to be reporting the truth.
4. Confidentiality
A professional accountant should respect the confidentiality of information acquired as a
result of professional and business relationships and should not disclose any such
information to third parties without proper specific authority unless there is a legal
professional right or duty to disclose. It further says that confidential information
acquired as a result of professional and business relationships should not be used for the
personal advantage of the professional accountant.
Actions that entail breach of principle
When a professional accountant discloses information to third parties without consent
from business or if such information is used for accountant’s own personal gain.

5. Professional Behaviour
If an accountant should comply with the relevant laws and regulations and should avoid
any action that discredit the profession. The principle of professional behaviour imposes
an obligation on professional accountants to comply with relevant laws and regulations.
For instance, in marketing and promoting themselves and their work, professional
accountants should not bring the profession into disrepute.
Actions that entail breach of principle
If an accountant makes exaggerated claim for services rendered, the qualifications they
possess or experience gained.

Ethical Threats
1. Self-interest threat
When an auditor (or close family member of the auditor) has a financial or other
beneficial interest in the client. For example: a shareholding in an audit client or a
loan extended to a client.
2. Self-review threat
When accountants review or re-evaluate work, they have performed. For example;
auditing financial statements that you have prepared yourself would constitute self-
review.
3. Advocacy threat
When an auditor acts on behalf of or as a representative of a client, or when an
auditor promotes the position of a client. For example: representing a client in a
legal case.
4. Familiarity threat
When, because of a relationship with a client that goes beyond professional
boundaries, the auditors become too sympathetic to the client’s interests, i.e. the
erosion of professional skepticism.
5. Intimidation threat
When auditors are deterred from acting objectively by actual or perceived threats,
e.g., the threat of litigation or withholding of fees.
 Safeguards to threats
The IFAC Code of Ethics divides safeguards into two broad categories:
1. Safeguards created by the profession, legislation or regulation: These include:
requirements for entry into the profession, continuing professional development
(CPD), corporate governance, professional standards, and monitoring and
disciplinary procedures.
2. Safeguards created by the work environment:
These one may include rotation/removal of relevant staff from the engagement
team, independent quality control reviews, using separate teams, etc.

Ethical Framework
 What are the relevant facts?
 What are the ethical issues involved?
 Which fundamental principles are threatened?
 Do internal procedures exist that mitigate the threats?
 What are the alternative courses of action?