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GUIDELINES OF CODE OF
ETHICS

CRG520-july09
 THE ROLE OF PROFESSIONAL ACCOUNTANT
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 Professional accountants are expected to protect

the interests of investors & other stakeholders
 Professional accountants were not expected to be
involved in misrepresentations in order to assist
mgmt, or to avoid risk of losing audit revenues, or
their jobs
 Professional accountants owe their primary loyalty
to the public interest
 PUBLIC EXPECTATIONS OF PROFESSIONALS
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 Professionals vs non-professionals?
 A profession often works with something of real value
where trust in their competency and responsibility is
particularly important
 Re: Table 6.1, pg 345
 Society has high regards for professionals and is
prepared to grant the profession certain rights 
society also expects that the duties are discharged
properly
 Duties expected of a profession? Re: pg 346
 Fiduciary relationship?
 Service to the public interest is paramount
 PUBLIC EXPECTATIONS OF PROFESSIONALS
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 Profession has certain features, duties & rights (re:

Table 6.2, pg 348)
 To support the features, duties & rights, profession
must develop a set of value or fundamental
principles to guide their members
 It is also important that the members possess
personal values that are in line with the profession’s
values and principles
 PUBLIC EXPECTATIONS OF A PROFESSIONAL
ACCOUNTANT
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 A professional accountant is expected to be an

accountant and a professional
 Have special technical expertise
 Adhere to the general professional duties & values

 Adhere to the specific standards laid out by the

professional body
 ETHICAL VALUES vs ACCOUNTING / AUDIT
TECHNIQUES
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Which is more important?

 Many hold the view that mastery of accounting / audit
techniques is more important
 However most financial fiascos are due to errors in judgment

 Ethical values should at least be on par with technical competence

 Ethical values may however be more dominant: when a
professional finds a problem that exceeds their current
competence, it is ethical values that will compel them to
recognise & disclose the fact
 Technical competence may govern the ST decisions of some
accountants, but in the longer term, ethical considerations are
dominant
 PRIORITY OF DUTY, LOYALTY & TRUST
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Who is the real client?

 Primary duty of a professional accountant is to provide fiduciary
services to society
 Conflicts may arise as society is not the one paying the salary
 A professional accountant must have the technical expertise, but
more importantly he or she must apply the expertise with
courage, honesty, integrity, objectivity, due care and professional
skepticism, competence, confidentiality, and avoidance of
misrepresentation in order to ensure that those relying on the
expertise can trust that proper care is taken of their interests
 Are these values, characteristics and principles enough to ensure
best practice?
 GAAP and GAAS  choices made according to them will be fair to
the multiple users
 PRIORITY OF DUTY, LOYALTY & TRUST
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An auditor’s loyalty to the public should not be less than the loyalty to
the existing shareholders, but certainly not primarily to the mgmt of
the organization

 Accountants who are employed by organisations?

The paramount duty is to ensure the accuracy and reliability of their
work for the benefit of the end user – the public.

 A professional accountant facing a difficult choice should make

the choice to preserve the trust inherent in the fiduciary
relationship:
1. Public
2. Profession
3. Client / employer
4. Individual professional
 SOURCES OF ETHICAL GUIDANCE
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 Codes of conduct or codes of ethics

 Other inputs should also be considered because
professional accountants must respond to numerous
expectations and standards created by various
professional acctg organisations
 No one organisation has a monopoly in the creation
of the environment of expectations or standards
 However, with the support of SC around the world
for harmonised global standards, IASB and IFAC
are becoming more important sources of guidance
 PROFESSIONAL CODES OF CONDUCT
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 Designed to provide guidance about the conduct

expected of members in order to maintain /
improve quality of services and reputation of the
profession
 To be effective, codes of conduct need to blend
fundamental principles with a limited number of
specific rules
 Typical framework for a code of conduct; re:
Table 6.6 pg 359
 FUNDAMENTAL PRINCIPLES & STANDARDS
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 RE: Table 6.7, pg 359

 Professional accountants are expected to apply the
fundamental principles in order to protect the public interest as
well as the interest of the profession and the members
themselves
 Codes of conduct also provide info about the operation of the
discipline process of the professional association  how and to
whom to report, investigation process, fines & penalties,
reporting of results, appeals, etc
 Clarification on proper application of rules is often made in the
form of interpretation
 Change in professional codes?
 Re: pg 366 – 369 for an example of code of professional
conduct
 International comparison of professional codes
 SHORTFALLS WITH & IN PROFESSIONAL CODES
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 Consultation on ethical matters is not uniformly encouraged

 A fair reporting/hearing process is not always indicated 
members are uncertain whether to come forward
 Protection is not offered to whistle blowers
 Sanctions are often unclear and their applicability is not defined
 Tendency for codes and the training related to them to focus on
what may not be done rather than on how to do something positively

* Unresolved issue  overlap / conflicts between professional codes

and codes of the firm for which the professional works
* However, ultimately, the primary duty is to protect public interest
 UNRESOLVED ISSUES IN CODES OF CONDUCT
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1. Conflicts between codes

2. Conflicts between competing interests or corporate
stakeholders
3. When should a professional blow the whistle, and to
whom?
4. Adequate protection of whistle-blowers
5. Service decisions involving judgment
 CONFLICTS OF INTEREST
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 Conflict of interest?
 Conflict of interest threatens to undermine the
reason for having an acctg profession
 Independence is fundamental
 2 aspects of conflict  (i) the reality and (ii) the
appearance that there may be conflicts
 A professional accountant must adhere to a set of
rules aimed at neutrality and at protecting the
public interest
 CONFLICTS OF INTEREST
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 Threats of non-compliance
 Re: Table 6.12
 Reducing conflict of interest situations
 Table 6.13
 Examples of techniques in managing conflicts of
interest (re: pg 376)
 CONFLICTS OF INTEREST
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 Types of conflicts of interest:

1. Self interest vs interests of other stakeholders

2. Self-interest and some other stakeholders vs some

other stakeholders
3. Interests of one client vs another client

4. Interests of one or more stakeholders vs interests of

one or more other stakeholders
 Conflicts of interests would affect services offered,
involve improper use of influence and involve use or
misuse of info
 Re: Table 6.14, pg 377
 LAWS AND JURISPRUDENCE
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 Professional accountants can also refer to legal

cases and lawyers for interpretations of their legal
liability & potential defence
 Auditor liability? Limited liability partnerships?
 Cautions:
 The law generally lags what society views as ethical
 What is legal is not always ethical
 Appear not to be highly relevant
 WHAT IF CODES AND LAWS DON’T HELP?
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 Professional accountants frequently find themselves

facing situations that are not covered in codes of
conduct, nor sufficiently close to jurisprudence
 Provision of consultation services by the professional
body (e.g. Director of Ethics)
 Up to the professional accountant  may hire their
own advisors, but ultimately would have to rely upon
their own knowledge, values & judgment to decide
what is right; framework for EDM
 BROADENING ROLE FOR PROFESSIONAL
ACCOUNTANTS
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 The need for integrity, independent judgment,

expertise and savvy in preparation & presentation of
financial analyses & reports is increasing
 Professional accountants also play important roles in
areas that are vital to good governance in the
emerging era of stakeholder accountability (re: pg
385 – 386)
 Professional accountants’ focus has always been on
financial reporting, but there is a need to refocus on
future performance and how to guide & manage it to
help ensure that ethics are built into strategic plans,
board compliance reviews and corporate incentive
systems