Framework for Codes of Ethics for Accounting Professionals
Doing and running a business involves the interest of many parties such as shareholders, suppliers, customers, society, and government. These stakeholders want their interests to be protected. Ethics is therefore a necessary part of doing business and all activities of the business (the actual business operations AND the recording of these operations) should be just, true and fair.
Reporting of business operations involves accounting and accounting professionals. It is their duty to act professionally and avoid ethical disasters like the collapse of Enron in 2001 and Lehman Brothers in 2008. Fraud and illegal short-cuts in accounting for fabricating financial statements eventually lead to losses for all parties involved in the business.
That's why codes of ethics have been designed for guidance of professionals in their decision making. The following bodies are involved in sanctioning and implementing codes of ethics for accounting professionals:
- AICPA (American Institute of CPAs)
- AGA (Association of Government Accountants)
- CFE (Certified Fraud Examiner)
- CMA (Certified Management Accountant)
- IIA (Institute of Internal Auditors)
- IESBA (International Ethics Board for Accountants)
The IESBA in April 2018 revised their "International Codes of Ethics for Professional Accountants" (conceptual framework), enhancing the following fundamental principles of ethics:
- Professional Competence and Due Care
- Professional Behavior
INTEGRITY: This directs the professional to be straightforward and honest in all business professional relationships.
OBJECTIVITY: Objectivity means that a professional accountant should not grant a conflict of interest, bias, or undue influence of others to override business or professional judgment.
PROFESSIONAL COMPETENCE AND DUE CARE: It is the duty of a professional accountant to provide competent professional services to the client that are based on the current developments in practice, techniques, and legislation.
CONFIDENTIALITY: A professional should keep the information of all the parties involved in business confidential unless he has the legal right or duty to disclose it.
PROFESSIONAL BEHAVIOR: This requires the professional accountant to comply with the regulations and laws and not take any action that can discredit the profession.
Threats to Compliancy with the Enhanced IESBA Conceptual Framework
Being compliant with above fundamental principles can be at risk due to several types of threats in many different scenarios and situations:
- SELF-REVIEW THREAT: Could occur when the judgment of an accountant is re-evaluated by the same accountant who is responsible for this judgment.
- SELF-INTEREST THREAT: Could occur when financial or other interests of the accountant or family members exist.
- ADVOCACY THREAT: Could occur when an accountant promotes an opinion or position to the point where objectivity may suffer.
- FAMILIARITY THREAT: Could occur when an accountant becomes too sympathetic to client's interest because of the close relationship.
- INTIMIDATION THREAT:Could occur when an accountant deters from acting objectively due to actual or perceived threats.
Safeguards to Threats to Compliancy with the Enhanced IESBA Conceptual Framework
Safeguards for reducing above threats to an acceptable level fall into 2 wide categories:
- Safeguards developed by the profession, legislation, or regulation.
- Safeguards in the work environment.
⇨ What is your opinion about this new framework for codes of ethics for accounting professionals?
IESBA, International Code of Ethics for Professional Accountants
Diane Jules, Robyn Erskine (2018), The International Code of Ethics for Professional Accountants: Key Areas of Focus for SMEs and SMPs", IFAC.