Professional Ethics

Identifying Threats Identify where there might be a threat to a fundamental principle Evaluate how serious the threat is If it’s serious, apply safeguards that will eliminate or reduce it to an acceptable level If you can’t apply safeguards, discontinue the relationship or service.

Self-interest threats Self-review threats Familiarity threats Intimidation threats Advocacy threats Threats Summary

Self Interest Threats These occur where a financial or other interest will inappropriately influence the accountant’s judgement or behaviour

Self Review Threats These may occur when an accountant has to re-evaluate a judgement or data that he/she has previously made or produced

Advocacy Threat These may occur when an accountant promotes a position or opinion (normally of a client) to the point that his or her objectivity may be compromised in the future

Familiarity Threat These may occur when, because of a close personal relationship, an accountant becomes too sympathetic to the interests of others

Intimidation Threat These may occur when an accountant may be deterred from acting objectively because of real or perceived threats.

Activity Jake has been put under significant pressure by his manager to change the conclusion of a report he has written which reflects badly on the manager’s performance. Which threat is he facing? Intimidation Threat

Activity You have strong views in support of a client who is being threatened with legal action by a supplier who is alleging late payment of invoices. You have offered to state publicly your views on the matter, in defence of your client. What type of threat to independence does this situation represent? a)Self-interest threat b)Familiarity threat c)Advocacy threat

Activity You have strong views in support of a client who is being threatened with legal action by a supplier who is alleging late payment of invoices. You have offered to state publicly your views on the matter, in defence of your client. What type of threat to independence does this situation represent? a)Self-interest threat b)Familiarity threat c)Advocacy threat

Activity Complete the Threats worksheet

Safeguards against threats Safeguards – are controls that mitigate or eliminate threats to independence The nature of the safeguards to be applied will vary depending on the circumstances Can you identify any safeguards ? Conceptual Framework

The FOUR Step Problem Solving Guide If you have any doubts about an ethical issue, you are advised to follow this four-step problem solving procedure: Identify where there might be a threat to a fundamental principle Evaluate how serious the threat is If it’s serious, apply safeguards that will eliminate or reduce it to an acceptable level If you can’t apply safeguards, discontinue the relationship or service.

Safeguards Legal & Professional Environment Work Environment

Legal Rules & Professional Codes Education and training, and CPD (on the grounds that they help you to make the right decisions Corporate governance regulations (e.g. on financial reporting) Professional standards, monitoring, and disciplinary procedures (including complaints procedures) Third party review of financial reports and returns (audit)

Safeguards in the work environment Quality controls, internal audit Mechanisms to protect ‘whistleblowers’ Consultation with regulatory bodies Rotation of personnel (to prevent over-familiarity and fraud) Opportunities to discuss ethical dilemmas with committees or ethics officers

Categorise the following safeguards according to whether they are created by the profession, or are present in the work environment: Rotation of personnel Appointment of an ethics officer Continuing professional development Corporate governance regulations Quality controls Internal audits Professional standards Third-party review of financial reports Mechanisms to protect whistle-blowers Activity