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Code of Ethics. Audit – 1

Essay Topic:

INTRODUCTION: Code of ethics is a very important matter in each and every profession and in accountancy profession it is more vital. The accountancy profession has a contradictory image. On the one hand accountants are seen as pillars of a society, providing reliable information in there working lives and acting as a treasurer for different public authority institutions, NGOs, banks, educational institution or local organizations in their spare of time.

Chartered Accountants are also seen as an independent justifier regarding the financial performance and activities of private and public organizations audited by them that enhance the confidence level of different decision makers. The other side of the coin is the image of aggressive tax schemes, financial scandals and money laundering. Code of ethics establishes the fundamental principles of professional ethics for professional accountants and provides a demonstrative guideline for applying those principles.

Professional accountants are required to keep remember and apply this Code of ethics to identify threats to compliance with the fundamental principles, to evaluate their significance and, if such threats are other than clearly insignificant to apply safeguards to eliminate them or reduce them to an acceptable level such that compliance with the fundamental principles is not compromised.

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WHAT ETHICS IS: Normally ethics is set of beliefs and thoughts of a person about what is right and wrong. In other words ethics can be defined as a set of morale principles or values.

Ethics, also known as moral philosophy is a branch of philosophy that addresses questions about morality—that is, concepts such as good and evil, right and wrong, virtue and vice, justice, etc. WHY CODE OF ETHICS NEED: The services provided by professional accountants have greater involvement with the public interest. Because it is necessary for governments, shareholders, trading partners, management and any other stakeholders, that the financial and other reports and information provided by accountants are reliable and can be used by others as they go about their daily lives.

Accountants work creates major impacts in the national economy through capital market as well as revenue collection for public expenditures (taxes). There is a third party involvement in most of accountants work; therefore professional accountants should maintain independence, integrity, objectivity and compliance with other ethical issues. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS: The International Federation of Accountants (IFAC) issued code of ethics under its own authority, high quality ethical standards and other pronouncements for professional accountants for use around the world.

This Code of Ethics establishes ethical requirements for professional accountants. This code consists of: • Fundamental Principles; and • Threats and Safeguards. FUNDAMENTAL PRINCIPLES: A professional accountant is required to comply with the following fundamental principles: • Integrity • Objectivity • Professional competence and due care • Confidentiality • Professional behavior INTEGRITY: A professional accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgments.

The principle of integrity imposes an obligation on all professional accountants to be straightforward and honest in professional and business relationships. Integrity also implies fair dealing and truthfulness. A professional accountant should not be associated with reports, returns, Communications or other information where they believe that the information: a) Contains a materially false or misleading statement; b) Contains statements or information furnished recklessly; or (c) Omits or obscures information required to be included where such omission or obscurity would be misleading.

OBJECTIVITY: A professional accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgments. The principle of objectivity imposes an obligation on all professional accountants not to compromise their professional or business judgment because of bias, conflict of interest or the undue influence of others. A professional accountant may be exposed to situations that may impair objectivity. It is impracticable to define and prescribe all such situations.

Relationships that bias or unduly influence the professional judgment of the professional accountant should be avoided. PROFESSIONAL COMPETENCE AND DUE CARE: A professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments in practice, legislation and techniques. A professional accountant should act diligently and in accordance with applicable technical and professional standards when providing professional services.

The principle of professional competence and due care imposes the following obligations on professional accountants: (a) To maintain professional knowledge and skill at the level required to ensure that clients or employers receive competent professional service; (b) To act diligently in accordance with applicable technical and professional standards when providing professional services. Competent professional service requires the exercise of sound judgment in applying professional knowledge and skill in the performance of such service.

Professional competence may be divided into two separate phases: (a) Attainment of professional competence; and (b) Maintenance of professional competence. The maintenance of professional competence requires a continuing awareness and an understanding of relevant technical professional and business developments. Continuing professional development develops and maintains the capabilities that enable a professional accountant to perform competently within the professional environments.

Diligence encompasses the responsibility to act in accordance with the requirements of an assignment, carefully, thoroughly and on a timely basis. A professional accountant should take steps to ensure that those working under the professional accountant’s authority in a professional capacity have appropriate training and supervision. Where appropriate, a professional accountant should make clients, employers or other users of the professional services aware of limitations inherent in the services to avoid the misinterpretation of an expression of opinion as an assertion of facts.

CONFIDENTIALITY: A professional accountant should respect the confidentiality of information acquired as a result of professional and business relationships and should 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. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of the professional accountant or third parties.

The principle of confidentiality imposes an obligation on professional accountants to refrain from: (a) Disclosing outside the firm or employing organization confidential information acquired as a result of professional and business relationships without proper and specific authority or unless there is a legal or professional right or duty to disclose; and (b) Using confidential information acquired as a result of professional and business relationships to their personal advantage or the advantage of third parties.

A professional accountant should maintain confidentiality even in a social environment. The professional accountant should be alert to the possibility of inadvertent disclosure, particularly in circumstances involving long association with a business associate or a close or immediate family member. A professional accountant should also maintain confidentiality of information disclosed by a prospective client or employer. A professional accountant should also consider the need to maintain confidentiality of information within the firm or employing organization.

A professional accountant should take all reasonable steps to ensure that staff under the professional accountant’s control and persons from whom advice and assistance is obtained respect the professional accountant’s duty of confidentiality. The need to comply with the principle of confidentiality continues even after the end of relationships between a professional accountant and a client or employer. When a professional accountant changes employment or acquires a new client, the professional accountant is entitled to use prior experience.

The professional accountant should not, however, use or disclose any confidential information either acquired or received as a result of a professional or business relationship. PROFESSIONAL BEHAVIOR: A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession. In marketing and promoting themselves and their work, professional accountants should not bring the profession into disrepute. Professional accountants should be honest and truthful and should not: a) Make exaggerated claims for the services they are able to offer, the qualifications they possess, or experience they have gained; or (b) Make disparaging references or unsubstantiated comparisons to the work of others. THREATS AND SAFEGUARDS: THREATS: Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances. Many threats fall into the following categories: (a) Self-interest threats, which may occur as a result of the financial or other interests of a professional accountant or of an immediate or close family member; b) Self-review threats, which may occur when a previous judgment needs to be re-evaluated by the professional accountant responsible for that judgment; (c) Advocacy threat which may occur when a professional accountant promotes a position or opinion to the point that subsequent objectivity may be compromised; (d) Familiarity threats, which may occur when, because of a close relationship, a professional accountant becomes too sympathetic to the interests of others; and e) Intimidation threats, which may occur when a professional accountant may be deterred from acting objectively by threats, actual or perceived. SAFEGUARDS: According to the code of ethics there are two general categories of safeguards : 1. Safeguards created by the profession, legislation or regulation 2. Safeguards within the work environment. Examples of safeguards created by the profession, legislation or regulation: ? Educational training and experience requirements for entry into the profession. ? Continuing professional development requirements. Corporate governance regulations. ? Professional standards. ? Professional or regulatory monitoring and disciplinary procedures. ? External review by a legally empowered third party of the reports, returns, communication or information produced by a professional accountant. Examples of safeguards in the work environment: ? Involving an additional professional accountant to review the work done or otherwise advise as necessary. ? Consulting an independent third party, such as a committee of independent directors, a professional regulatory body or another professional accountant. Rotating senior personnel. ? Discussing ethical issues with those in charge of client governance. ? Disclosing to those charged with governance the nature of services provided and extent of fees charged. ? Involving another firm to perform or repertory part of the engagement. CONCLUSION: The importance of professional ethics is that in order for accountancy services to be meaningful, the public must trust accountants and the trust are built by the knowledge that accountants are bound by a professional code of ethics.

If the professions to survive and thrive and if its members are to maintain their position, there has to be a code of conduct so that the public are able to fell that they can trust accountant. A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. Therefore, a professional accountant’s responsibility is not exclusively to satisfy the needs of an individual client or employer. In acting in the public interest a professional accountant should observe and comply with the ethical requirements of this Code.

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Code of Ethics. Audit - 1. (2018, Oct 16). Retrieved July 19, 2019, from https://phdessay.com/code-of-ethics-audit-1/.