THE IFAC CODE OF ETHICS

OVERVIEW
 Introduction
 The fundamental principles
 Threats to the fundamental principles
 Safeguards
 Resolving ethical conflicts

Introduction
Ethics can be difficult to define but it is principally concerned with human character
and conduct. Ethical behaviour is more than obeying laws, rules and regulations. It is
about doing ‘the right thing’. The accountancy profession is committed to acting
ethically and in the public interest.
Professional accountants may find themselves in situations where values are in
conflict with one another due to responsibilities to employers, clients and the public.
Accountants who are responsible for the preparation of financial information must
ensure that the information they prepare is technically correct, reports the
substance of the transaction and is adequately disclosed. The danger is that they
are put under pressure from senior managers to present figures that inflate profit
or assets or understate liabilities. This puts the accountant in a difficult position.
On one hand, they wish to prepare proper information and on the other hand,
there is a possibility they might lose their job if they do not comply with their
managers wishes.
In this case, ethics starts with the individual preparing the information. They have
a difficult decision to make; whether to keep quiet or take the matter further. If
they keep quiet, they will certainly be aware that they are not complying with the
ethics of the accounting body they belong to. If they speak out, they may be
bullied at work into changing the information or sacked. Many accounting bodies
have ethical ‘help lines’ where an individual can ring for advice.
ICAG has adopted IFAC’s Code of Ethics for Professional Accountants published by
the IESBA (hereafter referred to as ‘the Code’).
The code provides guidance in situations where ethical issues arise.
Note:
Most people are honest and have integrity and will always try to behave in the
right way in a given set of circumstances. However, accountants might face
situations where it is not easy to see the most ethical course of action. One of the
main roles of the code is to provide guidance in these situations.
Acting in the public Interest
An aspect of professional bodies, which separates a profession from a trade, is that
members of the profession are expected to act in the public interest. It is therefore
a responsibility of the accountancy profession ‘not to act exclusively to
satisfy the needs of a particular client or employer’.
When the demands or needs of a client or employer appear to be contrary to the
public interest, accountants should consider the public interest.
So what is the public interest?
Professional codes of ethics do not provide a clear definition, but it is usual to
associate the public interest with matters such as:
 detecting and reporting any serious misdemeanour or crime;
 protecting health and public safety
 preventing the public from being misled by a statement or action by an individual
or an organization;
 exposing the misuse of public funds and corruption in government;
 revealing the existence of any conflict of interests of those individuals who are in
a position of power or influence.

Structure of the code

The Code contains the following material:
 Part 1: Complying with the Code, which includes the fundamental principles and
the conceptual framework applicable to all professional accountants.
 Part 2: Professional Accountants in Business
 Part 3: Professional Accountants in Public Practice
Basic approach in the code
The Code requires professional accountants to comply with the fundamental
principles of ethics.
They must apply the conceptual framework to identify, evaluate and address threats
to compliance with the fundamental principles.

The fundamental principles

A professional accountant must comply with each of the following fundamental
principles which establish the standard of behaviour expected of a professional
accountant.
The Code expresses its guidance in terms of five fundamental principles.. These are:
i. integrity;
ii. objectivity;
iii. professional competence and due care;
iv. confidentiality; and
v. professional behaviour

Integrity
Professional accountants should be straight forward and honest in all
professional and business relationships. Integrity implies not just honesty but
also fair dealing and truthfulness.
A professional accountant should not be associated with reports,
returns,communications or other information where they believe that the information:
 contains a materially false or misleading statement;
 contains statements or information furnished recklessly,or
 omits or obscures information required to be included where such omission or
obscurity would be misleading.

Objectivity
Professional accountants should no allow bias, conflicts of interest or undue
influence of others to override their professional or business judgments.
A professional accountant may be exposed to situations that may impair objectivity. It
is impracticable to define and prescribe all such situations.
Relationships that creates bias or unduly influence the professional judgment of the
professional accountant should be avoided.

Professional competence and due care

Practising as a professional accountant involves a commitment to learning over
one’s entire working life.
Professional accountants have a duty to attain and maintain their professional
Knowledge and skill at such a level that a client or employer receives a
competent service, based on current developments in practice, legislation and
techniques. Professional accountants should act diligently and in accordance
with applicable technical and professional standards. Continuing professional
development develops and maintains the capabilities that enable a professional
accountant to perform competently within the professional environments.

Confidentiality
Professional accountants must respect the confidentiality of information acquired as
a result of professional and business relationships and should not disclose such
information to third parties without authority or unless there is a legal or professional
right or duty to disclose.
Confidential information acquired as a result of professional and business
relationships should not be used for the personal advantage of professional
accountants or third parties.

Professional behaviour
Professional accountants must comply with relevant laws and regulations and should
avoid any action which discredits the profession.

Threats to the fundamental principles

Compliance with the fundamental principles may potentially be threatened by a
broad range of circumstances.
The Code also requires professional accountants to apply the conceptual framework
to identify, evaluate and address threats to compliance with the fundamental
principles.
Many threats fall into the following categories:
i. Self-interest;
ii. Self-review;
iii. Advocacy;
iv. Familiarity; and
v. Intimidation.
Professional accountants must identify, evaluate and respond to such threats.
Unless any threat is clearly insignificant, professional accountants must
Implement safeguards to eliminate the threats or reduce them to an acceptable
level so that compliance with the fundamental principles is not compromised.

i. Self-interest threats
Self-interest threats may occur as a result of the financial or other interests of
professional accountants or their immediate or close family members.
Such financial interests might cause professional accountants to be reluctant to take
actions that would be against their own interests.
Examples of circumstances that may create self-interest threats include, but are not
limited to:
 financial interests, loans or guarantees;
 incentive compensation arrangements;
 inappropriate personal use of corporate assets;
 Concern over employment security; or
 commercial pressure from outside the employing organization.

ii. Self-review threats

Self-review threats occur when a previous judgement needs to be re-evaluated
by professional accountants responsible for that judgement. For example, where
a professional accountant has been involved in maintaining the accounting
records of a client. He may be unwilling to find fault with the financial statements
derived from those records. Again, this would threaten the fundamental principle
of objectivity.
Circumstances that may create self-review threats include, but are not limited
to,business decisions or data being subject to review and justification by the same
professional accountant in business responsible for making those decisions or
preparing that data.

iii. Advocacy threats

A professional accountant in business may often need to promote the
organization's position by providing financial information. As long as information
provided is neither false nor misleading such actions would not create an
advocacy threat.

iv. Familiarity threats

Familiarity threats occur when,because of a close relationship, professional
accountants become too sympathetic to the interests of others. Examples of
circumstances that may create familiarity threats include:
 A professional accountant in business in a position to influence financial or non-
financial reporting or business decisions having an immediate or close family
member who is in a position to benefit from that influence.
 Long association with business contacts influencing business decisions.
 Acceptance of a gift or preferential treatment, unless the value is clearly
insignificant.

v. Intimidation threats
Intimidation threats occur when a professional accountant’s conduct is influenced
by fear or threats (for example,when he encounters an aggressive and
dominating individual at a client or at his employer).

Examples of circumstances that may create intimidation threats include:

 Threat of dismissal or replacement over a disagreement about the application of
an accounting principle or the way in which financial information is to be
reported.
 A dominant personality attempting to influence decisions of the professional
accountant.
Safeguards
Safeguards which may remove or reduce threats to members fall into three
categories:
a. safeguards created by the profession, legislation or regulation
b. safeguards in the work environment
c. safeguards created by the individual.

Each of these categories is considered below.

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 or regulatory monitoring and disciplinary procedures (such as the
ICAG’s own disciplinary procedures).

Safeguards in the work environment include:

 the employer’s own systems of monitoring and ethics and conduct programmes
(such as an internal training or a mentoring programme):
 recruitment procedures, ensuring that only high-calibre,competent staff are
recruited:
 appropriate disciplinary processes:
 strong internal controls,
 Leadership that stresses the importance of ethical behaviour and which expects
employees to behave ethically;
 Policies and procedures to implement and monitor the quality of employee
performance;
 Policies and procedures to give employees the power to report ethical issues to
senior staff without fear of retribution from those about whom they are making
the report.
Safeguards created by the individual include:
 complying with continuing professional development requirements;
 keeping records of contentious issues and approach to decision-making;
 having a broader perspective on how other organizations operate by forming
business relationships with other professionals;
 using an independent mentor; and
 keeping in contact with legal advisors and professional bodies

Resolving ethical conflicts

An accountant may be required to resolve a conflict in the application of the
fundamental principles.
When trying to resolve a conflict the accountant must consider the following:
□the relevant facts;
□ the fundamental principles related to the matter in question;
□ the ethical issues involved;
□ whether there are any internal procedures to resolve ethical issues; and
□ the alternative courses of action that may be taken.
Having considered these issues, an accountant should determine the appropriate
course of action that is consistent with the fundamental principles identified whilst
bearing in mind the consequences of each possible course of action.
If the matter remains unresolved, the accountant should consult with other
appropriate persons within the employing organization for help in obtaining
resolution.
Where a matter involves a conflict within an organization, an accountant should also
consider consulting with those charged with governance of the organization, such as
the board of directors or the audit committee.
Issues and relevant discussions should be documented.

Non-resolution
If a significant conflict cannot be resolved, an accountant may wish to obtain
professional advice from the appropriate committee of the Institute or legal advisors,
and thereby obtain guidance on ethical issues without breaching confidentiality.
If, after exhausting all relevant possibilities, the ethical conflict remains unresolved,
an accountant should, where possible, refuse to remain associated with the matter
creating the conflict. The accountant may determine that, in the circumstances, it is
appropriate to resign from the employing organization.
PRACTICE QUESTION ONE
Aba is an ICAG Chartered Accountant who works at the head office of a group of
companies with investments across West Africa.
She has recently transferred to the Investor relations team where she reports to the
Finance Director and will be involved in drafting financial statements. She previously
spent two years in the Mergers and Acquisitions Department (M&A) of the group.
Aba was in charge of the due diligence exercise on the acquisition of XYLOFONE
Limited when she worked in M&A.
Recent indications suggest that the acquisition of XYLOFONE Limited has not been
as successful as hoped and there are indications that several of its capital assets
might be impaired.
Aba is now responsible for the team that carries out impairment reviews for the
group.

REQUIRED
Describe the ethical issues in this scenario explain how Aba should address them.

PRACTICE QUESTION TWO

Kwadwo is member of ICAG working as a unit accountant.

He is a member of a bonus scheme under which, staff receive a bonus of 10% of

their annual salary if profit for the year exceeds a trigger level.
Kwadwo has been reviewing working papers prepared to support this year’s financial
statements. He has found a logic error in a spreadsheet used as a measurement tool
for provisions.
Correction of this error would lead to an increase in provisions. This would decrease
profit below the trigger level for the bonus.
REQUIRED
What are the ethical Issues in this scenario and how should they be resolved?