Academic journal article Journal of Accountancy

A Global Standard for Professional Ethics: Cross-Border Business Concerns

Academic journal article Journal of Accountancy

A Global Standard for Professional Ethics: Cross-Border Business Concerns

Article excerpt

[ILLUSTRATION OMITTED]

EXECUTIVE SUMMARY

* Standard-setting organizations in more than 100 countries have adopted the International Federation of Accountants' (IFAC) Code of Ethics for Professional Accountants, while others are in the process of converging with the code. The code applies to professionals in public practice, business, academia and government.

* The IFAC code's relevance for U.S. practitioners has grown as business has become increasingly global and as the AICPA has begun the process of converging its Code of Professional Conduct with the IFAC guidance.

* Under IFAC's Statements of Membership Obligations (SMOs), member bodies agree to use their best efforts to meet these obligations, among them to have standards of conduct that are not less stringent than those of IFAC.

* The IFAC code uses a conceptual framework approach to evaluate relationships or circumstances that raise ethical issues. It requires in many situations that professionals identify and analyze threats to their independence and apply appropriate "safeguards" that eliminate those threats or reduce threats to an acceptable level. The IFAC code addresses most of the same areas as the AICPA code, such as objectivity, independence, due care and confidentiality. IFAC's conceptual framework approach suggests safeguards that may reduce threats in particular circumstances.

If you were traveling on business to Mexico City for the first time, you d be wise to research the local currency, laws and business etiquette. Similarly, if your audit client operates a major subsidiary in Mexico and your audit report will be relied upon by users of the client's financial statements in Mexico, you need a working knowledge of international professional standards. You should know about the accounting, auditing, ethics and quality control standards that affect the engagement and your accounting practice.

While all of these professional standards are critically important, this article focuses on the international ethics standards--including auditor independence--promulgated by the International Federation of Accountants (IFAC) and how U.S. practitioners may be affected by them. (Co-author Robert Bunting is deputy president of IFAC.) The visibility of the IFAC Code of Ethics for Professional Accountants in the U.S. has grown in recent years as business has become increasingly global and as the AICPA has begun the process of converging its Code of Professional Conduct with the IFAC guidance. If you think global ethics rules are irrelevant for your practice, you may be surprised to learn that CPA firms of all sizes are being asked to confirm their compliance with global standards.

Here are a few scenarios:

* A three-partner firm in Albany, N.Y., is the auditor for a beverage manufacturer. In a major acquisition, a Canadian company purchases the manufacturer. The new parent's auditor asks the U.S. firm to confirm that it is independent of the new owner under international standards.

* A local firm is part of a global accounting association that is deemed, under international standards, to be a network. All firms in the network must be independent of the other firms' audit and review clients in accordance with those standards. In fact, the network requires its members to meet global ethics standards for all multinational assurance engagements.

* A regional firm in southern California serves as auditor of a small Los Angeles-based software developer that acquires a company in Bangalore, India. The Indian company's significant vendors and its lenders expect to rely on the California firm's audit report and, thus, expect the firm to meet global standards.

* A small firm's client expands its business by opening a branch office in China. Lessors, vendors and lenders in China ask the firm to audit the client's financial information in accordance with international auditing standards, which will call for the firm to comply with international ethics standards. …

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