A New Take on Ethics and Independence: A Refreshed International Code Emphasizes 3 Key Objectives for Professional Accountants

By Allen, Catherine R. | Journal of Accountancy, December 2018 | Go to article overview

A New Take on Ethics and Independence: A Refreshed International Code Emphasizes 3 Key Objectives for Professional Accountants


Allen, Catherine R., Journal of Accountancy


The long-awaited International Code of Ethics for Professional Accountants, including International Independence Standards is here. The International Ethics Standards Board for Accountants (IESBA), an international standard-setting board that is responsible for issuing global ethics and independence standards, has worked long and hard to reconstruct its ethics code. What has changed in the IESBA Code, and how is the code better? Before addressing that question, it's important to understand the code's impact on professional accountancy bodies.

The IESBA standards significantly influence the accounting profession globally, including in the United States. The AICPA and other professional accountancy organizations worldwide, including the Chartered Institute of Management Accountants (CIMA), are "member bodies" of the International Federation of Accountants (IFAC) that agree (among other things) to meet the standards set by IFAC-supported boards, including the IESBA. (For a discussion of CIMA's Code of Ethics, see the sidebar "Ethics for CIMA Members.")

The AICPA Professional Ethics Executive Committee (PEEC) monitors the IESBA's standard-setting activities and may propose updates to the AICPA Code of Professional Conduct accordingly. In addition, when performing services under the International Standards on Auditing (ISAs), auditors must apply the IESBA Code plus any national ethical requirements. Lastly, members of the IFAC Forum of Firms, an association of larger global audit firm networks, agree to adopt policies and methodologies that conform to the IESBA Code (see the sidebar "A Forum to Promote Quality").

BUILDING A BETTER CODE

More than a mere redesign, improvements to the code are multifaceted, spanning the code's structure and applicability, conceptual underpinnings, formatting, language, and clarity. The code emphasizes three key messages to the "professional accountant." They are:

* Comply with the fundamental principles;

* Be independent, when required; and

* Apply the conceptual framework to identify, evaluate, and address threats to compliance with the fundamental principles.

Let's look at each of these in turn.

FUNDAMENTAL PRINCIPLES

The professional accountant's overarching objective under the code is to comply with the fundamental principles of ethical conduct, which support his or her duty to the public interest. The fundamental principles are:

* Integrity;

* Objectivity;

* Professional competence and due care;

* Confidentiality; and

* Professional behavior.

All roads in the code lead back to one or more of these five principles.

BE INDEPENDENT

The code consistently reminds professional accountants to be independent when performing audit, review, or other assurance services. The independence rules always have been part of the code, but now they have been moved to a new section, International Independence Standards, which is divided into two subsections (independence when performing financial statement audits and reviews (Part 4A) and independence when performing all other assurance services (Part 4B)). Professional accountants are required to apply the conceptual framework to identify, evaluate, and address threats to independence. Independence "of mind" and "in appearance" requires adherence to the fundamental principles of integrity and objectivity. New and improved provisions help accountants apply the conceptual framework when dealing with threats to independence in various contexts.

THE CONCEPTUAL FRAMEWORK

The code consistently reminds professional accountants to identify, evaluate, and address threats to compliance with the fundamental principles using the conceptual framework, which requires the professional accountant to:

* Apply professional judgment;

* Understand facts and circumstances and be alert to changing circumstances and new information; and

* Apply a "reasonable and informed third-party test" so that appearance concerns are fully considered. …

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