Code of Ethics & Standards of Professional Conduct for Accountant

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Code of Ethics:

(a) Integrity – to be straightforward and honest in all professional and business relationships.

(b) Objectivity – to not allow bias, conflict of interest or undue influence of others to override professional or business judgments.

(c) Professional Competence and Due Care – to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional services based on current developments in practice, legislation and techniques and act diligently and in accordance with applicable technical and professional standards.

 (d) Confidentiality – to respect the confidentiality of information acquired as a result of professional and business relationships and, therefore, not disclose any such information to third parties without proper and specific authority, unless there is a legal or professional right or duty to disclose, nor use the information for the personal advantage of the professional accountant or third parties.

(e) Professional behaviour – to comply with relevant laws and regulations and avoid any action that discredits the profession.

Explanation

Integrity:

Acting with integrity involves being honest and straight-forward. Any attempt to conceal or hide transactions, either through omitting them or through inadequate or confusing disclosure, demonstrates a lack of integrity. Later in this text, you will learn that forms of non-financial reporting are becoming increasingly important. Many entities prepare reports that detail their relationship with and impact on, society and the environment. These issues could be combined in an integrated report. Such reports are voluntary. However, it could be argued that withholding information from users about a company’s social and environmental impact lacks integrity. Moreover, failing to report issues about long-term sustainability may be just as misleading as incorrect information within the historical financial statements.

Objectivity

There are many times when an accountant might find that they have an incentive to represent the performance or position of a company in a particular way:

• Profit-related bonuses: An accountant might be motivated to maximise profit in the current period in order to achieve their bonus. Alternatively, if current period targets have been met, an accountant might be motivated to shift profits into the next reporting period.
• Financing: An entity is more likely to be given a loan if it has valuable assets on which the loan can be secured. An incentive may, therefore, exist for the accountants to over-state assets on the statement of financial position.
• Achieving a listing: A company that is being listed on a stock exchange will want to maximise the amount that it receives from investors. Therefore, there may be an incentive for the accountants to over-state the assets and profits of a company before it lists.

Financial statements should faithfully represent the transactions that have occurred. The ethical code encourages accountants to not let bias or outside influence impact their judgments.

Professional competence and due care

As you will be aware of your studies, new accounting standards are frequently issued and older standards are often updated or withdrawn. This means that accounting knowledge becomes out-of-date very quickly. In order to comply with the code of ethics, accountants have a responsibility to ensure that they are aware of changes to accounting standards. This is often referred to as CPD (Continuing Professional Development). CPD involves:

• Reading technical articles
• Attending seminars or presentations
• • Attending training courses

Without up-to-date technical knowledge, it is unlikely that an accountant can produce financial statements that comply with IFRS Standards. Material errors within financial statements will mislead the users.

Consequences of unethical behaviour

The journals and magazines of professional institutes regularly include details of professional disciplinary proceedings brought against individual members who were believed to have fallen short of the ethical standards expected of them. The consequences of unethical behaviour in deliberately presenting incorrect financial information are severe. Many accountants have been fined or jailed for not fulfilling their professional duties.

The consequences for individuals include:

• Fines
• The loss of professional reputation
• Being prevented from acting as a director or officer of a public company in the future
• The possibility of being expelled by a professional accountancy body
• A prison sentence.