Professional ethics and ACCA code - Fundamental principles o...

Learning Outcomes

After reading this article, you will be able to identify and explain the five fundamental principles of professional ethics in the ACCA Code. You will understand the reasons for these principles, recognise common categories of ethical threats, and describe appropriate safeguards to maintain ethical behaviour in audit and accountancy work.

ACCA Foundations in Audit (FAU) Syllabus

For ACCA Foundations in Audit (FAU), you are required to understand the core ethical responsibilities set out in the ACCA Code of Ethics and Conduct. Ethics underpin every element of audit work and failure to meet ethical standards can severely affect audit quality and professional credibility. You must focus your revision on:

• The five fundamental principles of professional ethics: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour
• Types of ethical threats: self-interest, self-review, advocacy, familiarity, and intimidation
• Safeguards to manage threats to ethical principles
• The purpose of ethics codes for audit and accountancy professionals
• The ongoing duty to act in the public interest and uphold the reputation of the profession

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following best describes the principle of objectivity?
   1. Maintaining absolute secrecy
   2. Remaining unbiased and free from conflicts of interest
   3. Gaining continual skills and training
   4. Promoting professional reputation

2. List the five fundamental principles set out in the ACCA Code of Ethics and Conduct.

3. True or false? A professional accountant is permitted to disclose confidential client information if there is no legal or professional duty requiring disclosure.

4. Give one example of a self-review threat in the context of an audit.

5. Name one safeguard that can be used if an ethical threat is identified.

Introduction

Professional accountants and auditors are expected to follow high standards of behaviour. This is not only to comply with the law, but to ensure the public, clients, and other stakeholders have trust in the profession. The ACCA Code of Ethics and Conduct defines key principles all members must meet. Understanding these principles and how to identify and respond to ethical threats is essential for anyone working in audit.

Ethical decision-making is part of all audit work. Auditors are continually exposed to situations where their judgement may be influenced. Recognising what ethical threats look like—and knowing how to respond—is examined frequently in the FAU exam.

Key Term: professional ethics
Rules, principles, and standards that shape acceptable behaviour for individuals in the accountancy profession and guide judgement in professional situations.

THE FIVE FUNDAMENTAL PRINCIPLES OF ETHICS

Every ACCA student and member must comply with five core ethical principles at all times. These principles are mandatory and apply to both professional and personal activities. Breaches may result in disciplinary action.

• Integrity: Be straightforward and honest in all dealings.
• Objectivity: Do not let bias, conflicts of interest, or undue influence override professional judgement.
• Professional Competence and Due Care: Maintain professional knowledge and skills at the required level and act diligently according to current standards.
• Confidentiality: Do not disclose information acquired during professional work to third parties without authority or legal duty.
• Professional Behaviour: Comply with relevant laws and regulations, and avoid conduct that may bring the profession into disrepute.

Key Term: integrity
Acting honestly and transparently in all professional and business relationships.

Key Term: objectivity
Avoiding bias, conflicts of interest, or undue influence in all professional judgements.

Key Term: professional competence and due care
Maintaining knowledge and skill at a required level, and acting diligently according to current technical and professional standards.

Key Term: confidentiality
Not disclosing or using client or employer information without proper authority or legal duty.

Key Term: professional behaviour
Acting in a way that maintains the profession's reputation and avoids any conduct that could discredit it.

ETHICAL THREATS TO COMPLIANCE

Sometimes, circumstances or relationships create threats that may compromise compliance with the fundamental principles. These are grouped into five main categories:

• Self-interest threat: The risk that personal gain or financial interest will override professional judgement (e.g., dependence on a single client for a large share of fees).
• Self-review threat: The danger of reviewing or auditing one’s own previous work (e.g., preparing accounts and later auditing them).
• Advocacy threat: Promoting a client’s position, possibly compromising objectivity (e.g., acting as an advocate in a legal dispute).
• Familiarity threat: Close relationships leading to too much sympathy or overlooking faults (e.g., auditing a close friend's company).
• Intimidation threat: Feeling pressured or coerced by others, such as threats of dismissal or replacement.

Key Term: ethical threat
Circumstances that may compromise, or be seen to compromise, a professional accountant's ability to comply with the fundamental principles.

MANAGING AND SAFEGUARDING AGAINST ETHICAL THREATS

Identifying a threat is not enough—action must be taken to eliminate it or reduce it to an acceptable level. If this is not possible, you must decline or end the engagement.

Common safeguards include:

• Removing the individual causing the threat from the assignment
• Consulting with another professional or an ethics committee
• Implementing internal procedures (e.g., second partner review)
• Disclosing the threat to those charged with governance
• Refusing or resigning from the engagement

Maintaining professional scepticism and always considering public interest should guide your decisions.

Worked Example 1.1

You are auditing a company where your audit manager’s close relative is the finance director. What ethical principle is at risk and what should you do?

Answer:

• The principle at risk is objectivity, due to a familiarity threat.
• Safeguards include replacing the audit manager on the team or removing any involvement with areas where the relative holds influence. If this is not possible, the audit firm should decline or terminate the engagement.

Worked Example 1.2

The audit team is offered expensive gifts by a client after completing the engagement. How should you respond?

Answer:

• Accepting substantial gifts creates a self-interest threat and may compromise integrity.
• The appropriate action is to politely decline any non-trivial gifts and report the offer internally. All offers, even if refused, should be documented in the audit file.

Exam Warning

Many candidates mistakenly believe that simply disclosing an ethical threat to the client allows the engagement to continue. Disclosure alone is not an adequate safeguard if the threat remains significant. Always consider whether further action, including withdrawal, is necessary.

Revision Tip

When a question asks about ethical threats, always identify both the principle at risk and a practical safeguard to address it.

Summary

Professional accountants must always act in accordance with the ACCA Code of Ethics. You need to know the five fundamental principles, recognise typical threats, and be prepared to suggest practical safeguards which may involve declining or ending work. This area is frequently examined and requires clear, concise responses with relevant examples.

Key Point Checklist

This article has covered the following key knowledge points:

• Identify and explain the five fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour
• Recognise and classify common ethical threats: self-interest, self-review, advocacy, familiarity, and intimidation
• Describe practical safeguards to eliminate or reduce threats
• Understand the importance of taking further action (including withdrawal) if threats cannot be adequately managed
• Appreciate the importance of public perception and always behaving in a way that maintains the reputation of the profession

Key Terms and Concepts

• professional ethics
• integrity
• objectivity
• professional competence and due care
• confidentiality
• professional behaviour
• ethical threat