1. International Federation of Accountants545 Fifth Avenue, 14th FloorNew York, New York 10017 USAThis publication was prepared by the International Federation of Accountants (IFAC).Its mission is to serve the public interest, strengthen the worldwide accountancyprofession and contribute to the development of strong international economies byestablishing and promoting adherence to high-quality professional standards, furtheringthe international convergence of such standards and speaking out on public interestissues where the professions expertise is most relevant.This publication may be downloaded free-of-charge from the IFAC websitehttp://www.ifac.org. The approved text is published in the English language.IFAC welcomes any comments you may have regarding this handbook. Comments maybe sent to the address above or emailed to IAASBpubs@ifac.org.Copyright January 2007 by the International Federation of Accountants (IFAC). Allrights reserved. Permission is granted to make copies of this work provided that suchcopies are for use in academic classrooms or for personal use and are not sold ordisseminated and provided further that each copy bears the following credit line:Copyright January 2007 by the International Federation of Accountants. All rightsreserved. Used by permission. Otherwise, written permission from IFAC is required toreproduce, store or transmit this document, except as permitted by law. Contactpermissions@ifac.org.ISBN: 1-931949-66-2

2. HANDBOOK OF INTERNATIONALAUDITING, ASSURANCE, AND ETHICSPRONOUNCEMENTS2007 EDITIONScope of the HandbookThis handbook brings together for continuing reference background information on theInternational Federation of Accountants (IFAC) and the currently effectivepronouncements on auditing, assurance, and ethics issued by IFAC as of January 1,2007. In this handbook, the text of pronouncements that become effective at a date afterJanuary 1, 2007 has been shaded.How this Handbook is ArrangedThe contents of the handbook are arranged by section as follows:Changes of Substance from the 2006 Edition of the Handbookand Recent Developments ...................................................................... 1Background Information on the International Federation of Accountants ..... 5Ethics ............................................................................................................. 11Auditing, Review, Other Assurance, and Related Services ........................... 129 3. 1 CHANGESCHANGESCHANGES OF SUBSTANCE FROM THE 2006 EDITION OFTHE HANDBOOK AND RECENT DEVELOPMENTSReferencesThis handbook contains references to the International Auditing Practices Committee(IAPC) of the International Federation of Accountants (IFAC). As of April 1, 2002 theInternational Auditing and Assurance Standards Board (IAASB) of IFAC replaced theIAPC.This handbook also contains references to the International Accounting StandardsCommittee (IASC). As of April 1, 2002 the International Financial Reporting Standards(IFRSs) (previously referred to as International Accounting Standards (IASs)) are issuedby the International Accounting Standards Board (IASB). Unless otherwise indicated,references to IASs and IFRSs are to the IASs and IFRSs in effect at the date ofpreparing a pronouncement. Accordingly, readers are cautioned that, where a revisedIAS or IFRS has been issued subsequently, reference should be made to the most recentIAS or IFRS.Pronouncements Issued by the International Auditing andAssurance Standards BoardAdditionsThe following additions have been made in this edition of the handbook: The Glossary of Terms has been updated. ISA 700, The Independent Auditors Report on a Complete Set of GeneralPurpose Financial Statements became effective for auditors reports dated on orafter December 31, 2006. ISA 700 gave rise to conforming amendments1 to ISA200, Objective and General Principles Governing an Audit of FinancialStatements, ISA 210, Terms of Audit Engagements, ISA 570, Going Concern,ISA 701, Modifications to the Independent Auditors Report and ISA 800, TheIndependent Auditors Report on Special Purpose Audit Engagements. Except forthe final sentence of paragraph 3 and paragraphs 37-48 of the amended ISA 200and the whole of the amended ISA 210, these conforming amendments are noweffective and have been incorporated in the text of the Standards. Implementationof the final sentence of paragraph 3 and paragraphs 37-48 of the amended ISA 200and the amended ISA 210 has been deferred until such time as ISA 800 (Revised),Special ConsiderationsAudits of Special Purpose Financial Statements andSpecific Elements, Accounts or Items of a Financial Statement becomes effective(a date yet to be determined).1 Conforming amendment means an amendment to an existing Standard arising from the revision of another Standard or the development of a new Standard. 4. CHANGES OF SUBSTANCE AND RECENT DEVELOPMENTSWithdrawals ISA 230, Documentation was withdrawn in June 2006 when the revised ISA 230Audit Documentation became effective. ISA 700, The Auditors Report on Financial Statements was withdrawn inDecember 2006 when the revised ISA 700, The Independent Auditors Report ona Complete Set of General Purpose Financial Statements became effective.Small Entity Audit ConsiderationsFor ISAs issued subsequent to March 2003, whenever necessary, small entity auditconsiderations are included in the body of those ISAs. Guidance contained in IAPS1005, The Special Considerations in the Audit of Small Entities is withdrawn whenrevisions to related ISAs become effective. Accordingly, readers are cautioned that, inaddition to the guidance in IAPS 1005, reference should be made to the small entityaudit considerations included in ISAs issued subsequent to March 2003.Clarity ProjectAmendments to the Preface to the International Standards on Quality Control, Auditing,Review, Other Assurance and Related Services (Preface) were approved in December2006 as part of the IAASBs project to improve the clarity of its standards. The Prefaceestablishes the conventions to be used by the IAASB in drafting future InternationalStandards on Auditing, and the obligations of auditors who follow those Standards.The IAASB has also approved the application of those conventions to the followingfour, re-titled ISAs: ISA 240 (Redrafted), The Auditors Responsibilities Relating to Fraud in an Auditof Financial Statements; ISA 300 (Redrafted), Planning an Audit of Financial Statements; ISA 315 (Redrafted), Identifying and Assessing the Risks of MaterialMisstatement Through Understanding the Entity and Its Environment; and ISA 330 (Redrafted), The Auditors Responses to Assessed Risks.The IAASB intends to apply the conventions to all of the ISAs, and to make allredrafted ISAs effective from a single date. Provisionally, this is expected to be foraudits of financial statements for periods beginning on or after December 15, 2008.2The IAASB is making the approved redrafted ISAs available as early as possible toassist in their translation, adoption and implementation. The amended Preface andrecently redrafted ISAs are included at the end of the Audit, Review, Other Assurance,and Related Services section of this handbook.2 The final effective date will be confirmed as the IAASB progresses its agenda to issue a complete set ofredrafted ISAs. The effective date will, however, not be earlier than this provisional date.CHANGES 2 5. CHANGES OF SUBSTANCE AND RECENT DEVELOPMENTS3 CHANGESCHANGESThe redrafted ISAs are described as redrafted. If further revision has been undertaken,a standard is described as revised and redrafted.Exposure DraftsIn 2006, the IAASB has issued exposure drafts on the following: ISA 230 (Redrafted), Audit Documentation ISA 260 (Revised and Redrafted), Communication with Those Charged withGovernance ISA 320 (Revised and Redrafted), Materiality in Planning and Performing anAudit ISA 450 (Redrafted), Evaluation of Misstatements Identified during the Audit ISA 540 (Revised and Redrafted), Auditing Accounting Estimates, Including FairValue Accounting Estimates, and Related Disclosures3 ISA 550 (Revised and Redrafted), Related Parties ISA 560 (Redrafted), Subsequent Events ISA 580 (Revised and Redrafted), Written Representations ISA 600 (Revised and Redrafted), The Audit of Group Financial Statements ISA 610 (Redrafted), The Auditors Consideration of the Internal Audit Function ISA 720 (Redrafted), The Auditors Responsibility in Relation to OtherInformation in Documents Containing Audited Financial StatementsFor additional information on recent developments and to obtain final pronouncementsissued subsequent to December 31, 2006 or outstanding exposure drafts visit theIAASBs website at http://www.iaasb.org.Pronouncements Issued by the International Ethics StandardsBoard for AccountantsAdditionsDuring 2006 the International Ethics Standards Board for Accountants (IESBA) issued arevision to the definition of network firm. This revised definition is effective forassurance reports dated on or after December 31, 2008.3 The proposed ISA 540 (Revised and Redrafted) is a combination of ISA 540 (Revised), AuditingAccounting Estimates and Related Disclosures (Other Than Those Involving Fair Value Measurementsand Disclosures) and ISA 545, Auditing Fair Value Measurements and Disclosures. 6. CHANGES OF SUBSTANCE AND RECENT DEVELOPMENTSRecent Exposure DraftsThe IESBA has issued an exposure draft of proposed revised Section 290IndependenceAudit and Review Engagements and proposed new Section 291IndependenceOther Assurance Engagements.For additional information on recent developments and to obtain final pronouncementsissued subsequent to December 31, 2006 or outstanding exposure drafts visit theIESBAs page on the IFAC website at http://www.ifac.org.CHANGES 4 7. 5 IFACIFACBACKGROUND INFORMATION ON THEINTERNATIONAL FEDERATION OF ACCOUNTANTSThe OrganizationThe International Federation of Accountants (IFAC) is the worldwide organization forthe accountancy profession. Founded in 1977, its mission is to serve the public interest,IFAC will continue to strengthen the worldwide accountancy profession and contributeto the development of strong international economies by establishing and promotingadherence to high-quality professional standards, furthering the internationalconvergence of such standards and speaking out on public interest issues where theprofessions expertise is most relevant.IFACs governing bodies, staff and volunteers are committed to the values of integrity,transparency and expertise. IFAC also seeks to reinforce professional accountantsadherence to these values, which are reflected in the IFAC Code of Ethics forProfessional Accountants.Primary ActivitiesServing the Public InterestIFAC provides leadership to the worldwide accountancy profession in serving the publicinterest by: Developing, promoting and maintaining global professional standards and a Codeof Ethics for Professional Accountants of a consistently high-quality; Actively encouraging convergence of professional standards, particularly, auditing,assurance, ethics, education, and public and private sector financial reportingstandards; Seeking continuous improvements in the quality of auditing and financialmanagement; Promoting the values of the accountancy profession to ensure that it continuallyattracts high caliber entrants; Promoting compliance with membership obligations; and Assisting developing and emerging economies, in cooperation with regionalaccounting bodies and others, in establishing and maintaining a professioncommitted to quality performance and in serving the public interest.Contributing to the Efficiency of the Global EconomyIFAC contributes to the efficient functioning of the international economy by: Improving confidence in the quality and reliability of financial reporting; Encouraging the provision of high-quality performance information (financial andnon-financial) within organizations; 8. BACKGROUND INFORMATION ON THEINTERNATIONAL FEDERATION OF ACCOUNTANTS Promoting the provision of high-quality services by all members of the worldwideaccountancy profession; and Promoting the importance of adherence to the Code of Ethics for ProfessionalAccountants by all members of the accountancy profession, including members inindustry, commerce, the public sector, the not-for-profit sector, academia, andpublic practice.Providing Leadership and SpokesmanshipIFAC is the primary spokesperson for the international profession and speaks out on awide range of public policy issues, especially those where the professions expertise ismost relevant, as well as on regulatory issues related to auditing and financial reporting.This is accomplished, in part, through outreach to numerous organizations that rely onor have an interest in the activities of the international accountancy profession.MembershipIFAC is comprised of 155 members and associates in 118 countries worldwide,representing more than 2.5 million accountants in public practice, industry andcommerce, the public sector, and education. No other accountancy body in the worldand few other professional organizations have the broad-based international support thatcharacterizes IFAC.IFACs strengths derive not only from its international representation, but also from thesupport and involvement of its individual member bodies, which are themselvesdedicated to promoting integrity, transparency, and expertise in the accountancyprofession, as well as from the support of regional accountancy bodies.Standard-Setting InitiativesIFAC has long recognized the need for a globally harmonized framework to meet theincreasingly international demands that are placed on the accountancy profession,whether from the business, public sector or education communities. Major componentsof this framework are the Code of Ethics for Professional Accountants, InternationalStandards on Auditing (ISAs), International Education Standards, and InternationalPublic Sector Accounting Standards (IPSASs).IFACs standard-setting boards, described below, follow a due process that supports thedevelopment of high-quality standards in the public interest in a transparent, efficient,and effective manner. These standard-setting boards all have Consultative AdvisoryGroups, which provide public interest perspectives, and include public members.IFACs Public Interest Activity Committees (PIACs) the International Auditing andAssurance Standards Board, International Accounting Education Standards Board,International Ethics Standards Board for Accountants and the Compliance AdvisoryPanel are subject to oversight by the Public Interest Oversight Board (PIOB) (seebelow).IFAC 6 9. BACKGROUND INFORMATION ON THEINTERNATIONAL FEDERATION OF ACCOUNTANTS7 IFACIFACThe terms of reference, due process and operating procedures of the IFAC standard-settingboards are available from the IFAC website at http://www.ifac.org.IFAC actively supports convergence to ISAs and other standards developed by IFACsindependent standard-setting boards and the International Accounting Standards Board.Auditing and Assurance ServicesThe International Auditing and Assurance Standards Board (IAASB) develops ISAs andInternational Standards on Review Engagements, which deal with the audit and reviewof historical financial statements; and International Standards on AssuranceEngagements, which deal with assurance engagements other than the audit or review ofhistorical financial information. The IAASB also develops related practice statements.These standards and statements serve as the benchmark for high-quality auditing andassurance standards and statements worldwide. They establish standards and provideguidance for auditors and other professional accountants, giving them the tools to copewith the increased and changing demands for reports on financial information, andprovide guidance in specialized areas.In addition, the IAASB develops quality control standards for firms and engagementteams in the practice areas of audit, assurance and related services.EthicsThe Code of Ethics for Professional Accountants, developed by IFACs InternationalEthics Standards Board for Accountants (IESBA), establishes ethical requirements forprofessional accountants and provides a conceptual framework for all professionalaccountants to ensure compliance with the five fundamental principles of professionalethics. These principles are integrity, objectivity, professional competence and due care,confidentiality, and professional behavior. Under the framework, all professionalaccountants are required to identify threats to these fundamental principles and, if thereare threats, apply safeguards to ensure that the principles are not compromised. Amember body of IFAC or firm conducting an audit using ISAs may not apply lessstringent standards than those stated in the Code.Public Sector AccountingIFACs International Public Sector Accounting Standards Board (IPSASB) focuses onthe development of high-quality financial reporting standards for use by public sectorentities around the world. It has developed a comprehensive body of IPSASs setting outthe requirements for financial reporting by governments and other public sectororganizations. The IPSASs represent international best practice in financial reporting bypublic sector entities. In many jurisdictions, the application of the requirements ofIPSASs will enhance the accountability and transparency of the financial reportsprepared by governments and their agencies.The IPSASs are contained in the 2007 edition of IFACs Handbook of InternationalPublic Sector Accounting Pronouncements and are also available from the IFAC 10. BACKGROUND INFORMATION ON THEINTERNATIONAL FEDERATION OF ACCOUNTANTSwebsite at http://www.ifac.org. French and Spanish translations of the IPSASs are alsoavailable for download from the IFAC website.EducationWorking to advance accounting education programs worldwide, IFACs InternationalAccounting Education Standards Board (IAESB) develops International EducationStandards, setting the benchmarks for the education of members of the accountancyprofession. All member bodies are required to comply with those standards, whichaddress the education process leading to qualification as a professional accountant aswell as the ongoing continuing professional development of members of the profession.The IAESB also develops International Education Practice Statements and otherguidance to assist member bodies and accounting educators implement and achieve bestpractice in accounting education.This handbook does not contain the International Education Standards, which areavailable from the IFAC website at http://www.ifac.org.Support for Professional Accountants in BusinessBoth IFAC and its member bodies face the challenge of meeting the needs of anincreasing number of accountants employed in business and industry, the public sector,education, and the not-for-profit sector. These accountants now comprise more than 50percent of the membership of member bodies. IFACs Professional Accountants inBusiness (PAIB) Committee develops guidance to assist member bodies in addressing awide range of professional issues, encourages and supports high-quality performance byprofessional accountants in business, and strives to build public awareness andunderstanding of the work they provide.Small- and Medium-Sized PracticesIFAC is also focused on providing support for another growing constituency: small- andmedium-sized practices (SMPs). IFACs SMP Committee develops guidance on keytopics for SMPs and small- and medium-sized entities (SMEs), includingimplementation guidance. It provides input from an SMP/SME perspective on thedevelopment of international standards and on the work of the IFAC standard-settingboards and is focused on developing implementation guidance for ISAs and theInternational Standard on Quality Control 1. The SMP Committee also investigatesways in which IFAC, together with its member bodies, can respond to the needs ofaccountants operating in small and medium enterprises and practices and holds annualforums on SMP/SME issues.Developing NationsIFACs Developing Nations Committee supports the development of the accountancyprofession in all regions of the world by representing and addressing the interests ofdeveloping nations and by providing guidance to strengthen the accountancy professionworldwide. The committee also seeks resources and development assistance from theIFAC 8 11. BACKGROUND INFORMATION ON THEINTERNATIONAL FEDERATION OF ACCOUNTANTS9 IFACIFACdonor community on their behalf. In addition, the committee holds annual forums onaddressing the needs of developing nations.IFAC Member Body Compliance ProgramAs part of the Member Body Compliance Program, IFAC members and associates(mostly national professional institutes) are required to demonstrate how they have usedbest endeavors, subject to national laws and regulations, to implement the standardsissued by IFAC and the International Accounting Standards Board. The program, whichis overseen by IFACs Compliance Advisory Panel, also seeks to determine howmembers and associates have met their obligations with respect to quality assurance andinvestigation and disciplinary programs for their members as set out in IFACsStatements of Membership Obligations (SMOs). The SMOs serve as the foundation ofthe Compliance Program and provide clear benchmarks to current and potential memberbodies to assist them in ensuring high-quality performance by professional accountants.This handbook does not contain the SMOs, which are available from the IFAC websiteat http://www.ifac.org.Regulatory FrameworkIn November 2003, IFAC, with the strong support of member bodies and internationalregulators, approved a series of reforms to increase confidence that the activities ofIFAC are properly responsive to the public interest and will lead to the establishment ofhigh-quality standards and practices in auditing and assurance.The reforms provide for the following: more transparent standard-setting processes,greater public and regulatory input into those processes, regulatory monitoring, publicinterest oversight, and ongoing dialogue between regulators and the accountancyprofession. This is accomplished through the following structures:Public Interest Oversight Board (PIOB)Established in February 2005, the PIOBoversees IFACs standard-setting activities in the areas of auditing and assurance, ethics including independence and education, as well as the IFAC Member BodyCompliance Program. The PIOB is comprised of ten representatives nominated byinternational regulators and institutions.Monitoring Group (MG)The MG comprises international regulators and relatedorganizations. Its role is to update the PIOB regarding significant events in theregulatory environment. It is also the vehicle for dialogue between regulators and theinternational accountancy profession.IFAC Regulatory Liaison Group (IRLG)The IRLG includes the IFAC President,Deputy President, Chief Executive, three members designated by the IFAC Board, theChair of the Forum of Firms, and six members designed by the firms. It works with theMG and addresses issues related to the regulation of the profession. 12. BACKGROUND INFORMATION ON THEINTERNATIONAL FEDERATION OF ACCOUNTANTSIFAC Structure and OperationsGovernance of IFAC rests with its Board and Council. The IFAC Council comprisesone representative from each member. The Board is a smaller group responsible forpolicy setting. As representatives of the worldwide accountancy profession, Boardmembers take an oath of office to act with integrity and in the public interest.The IFAC Nominating Committee makes recommendations on the composition of IFACboards and committees, the IFAC Board, and candidates for the office of IFAC DeputyPresident. The committee is guided in its work by the principle of choosing the bestperson for the position. It also seeks to balance regional and professional representationon the boards and committees as well as representation from countries with differentlevels of economic development.IFAC is headquartered in New York City and is staffed by accounting and otherprofessionals from around the world.IFAC Website, Copyright and TranslationIFAC makes its guidance widely available by enabling individuals to freely downloadall publications from its website (http://www.ifac.org) and by encouraging its membersand associates, regional accountancy bodies, standard setters, regulators and others toinclude links from their own websites, or print materials, to the publications on IFACswebsite. The IFAC Policy Statement, Permissions Policy for Publications Issued by theInternational Federation of Accountants, outlines its policy with regard to copyright.IFAC recognizes that it is important that preparers and users of financial statements,auditors, regulators, lawyers, academia, students, and other interested groups in non-English speaking countries have access to its standards in their native language. TheIFAC Policy Statement, Translation of Standards and Guidance Issued by theInternational Federation of Accountants, outlines its policy with regard to translation ofits standards.This handbook does not contain these policy statements. However, they are availablefrom the IFAC website at http://www.ifac.org. The website also features additionalinformation about IFACs structure and activities.IFAC 10 13. 11 ETHICSETHICS TABLE OF CONTENTSETHICSCONTENTSPageCode of Ethics for Professional Accountants (Issued June 2005,effective June 30, 2006)........................................................................... 12Revision of Section 290, IndependenceAssurance Engagements(Issued July 2006, effective December 31, 2008).................................... 124For additional information on the International Ethics Standards Board for Accountants(IESBA), recent developments, and to obtain outstanding exposure drafts, visit theIESBAs page on the IFAC website at http://www.ifac.org. 14. ETHICS 12June 2005CODE OF ETHICS FORPROFESSIONAL ACCOUNTANTS(Effective June 30, 2006)CONTENTSPagePREFACE ...................................................................................................... 14PART A: GENERAL APPLICATION OF THE CODE ............................... 15100 Introduction and Fundamental Principles ........................................ 16110 Integrity ........................................................................................... 22120 Objectivity ....................................................................................... 23130 Professional Competence and Due Care .......................................... 24140 Confidentiality ................................................................................. 25150 Professional Behavior ...................................................................... 27PART B: PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE ... 28200 Introduction ..................................................................................... 29210 Professional Appointment ............................................................... 35220 Conflicts of Interest ......................................................................... 39230 Second Opinions .............................................................................. 41240 Fees and Other Types of Remuneration .......................................... 42250 Marketing Professional Services ..................................................... 45260 Gifts and Hospitality ........................................................................ 46270 Custody of Client Assets ................................................................. 47280 ObjectivityAll Services .................................................................. 48290 IndependenceAssurance Engagements .......................................... 49PART C: PROFESSIONAL ACCOUNTANTS IN BUSINESS ................... 102300 Introduction ..................................................................................... 103310 Potential Conflicts ........................................................................... 107320 Preparation and Reporting of Information ....................................... 109330 Acting with Sufficient Expertise ...................................................... 111 15. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS13 ETHICSETHICS340 Financial Interests ............................................................................ 113350 Inducements ..................................................................................... 115DEFINITIONS .............................................................................................. 117EFFECTIVE DATE ....................................................................................... 123 16. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSPREFACEThe mission of the International Federation of Accountants (IFAC), as set out in itsconstitution, is the worldwide development and enhancement of an accountancyprofession with harmonized standards, able to provide services of consistently highquality in the public interest. In pursuing this mission, the IFAC Board hasestablished the Ethics Standards Board for Accountants to develop and issue, underits own authority, high quality ethical standards and other pronouncements forprofessional accountants for use around the world.This Code of Ethics for Professional Accountants establishes ethical requirementsfor professional accountants. A member body of IFAC or firm may not apply lessstringent standards than those stated in this Code. However, if a member body orfirm is prohibited from complying with certain parts of this Code by law orregulation, they should comply with all other parts of this Code.Some jurisdictions may have requirements and guidance that differs from this Code.Professional accountants should be aware of those differences and comply with themore stringent requirements and guidance unless prohibited by law or regulation.ETHICS 14 17. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS15 ETHICSETHICSPART AGENERAL APPLICATION OF THE CODEPageSection 100 Introduction and Fundamental Principles ...................................... 16Section 110 Integrity .......................................................................................... 22Section 120 Objectivity ..................................................................................... 23Section 130 Professional Competence and Due Care ........................................ 24Section 140 Confidentiality ............................................................................... 25Section 150 Professional Behavior .................................................................... 27 18. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION 100Introduction and Fundamental Principles100.1 A distinguishing mark of the accountancy profession is its acceptance ofthe responsibility to act in the public interest. Therefore, a professionalaccountants* responsibility is not exclusively to satisfy the needs of anindividual client or employer. In acting in the public interest aprofessional accountant should observe and comply with the ethicalrequirements of this Code.100.2 This Code is in three parts. Part A establishes the fundamental principlesof professional ethics for professional accountants and provides aconceptual framework for applying those principles. The conceptualframework provides guidance on fundamental ethical principles.Professional accountants are required to apply this conceptual frameworkto identify threats to compliance with the fundamental principles, toevaluate their significance and, if such threats are other than clearlyinsignificant to apply safeguards to eliminate them or reduce them to anacceptable level such that compliance with the fundamental principles isnot compromised.100.3 Parts B and C illustrate how the conceptual framework is to be applied inspecific situations. It provides examples of safeguards that may beappropriate to address threats to compliance with the fundamentalprinciples and also provides examples of situations where safeguards arenot available to address the threats and consequently the activity orrelationship creating the threats should be avoided. Part B applies toprofessional accountants in public practice.* Part C applies toprofessional accountants in business.* Professional accountants inpublic practice may also find the guidance in Part C relevant to theirparticular circumstances.Fundamental Principles100.4 A professional accountant is required to comply with the followingfundamental principles:(a) IntegrityA professional accountant should be straightforward and honest inall professional and business relationships.(b) + See Definitions.ETHICS 16 19. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS17 ETHICSETHICSObjectivityA professional accountant should not allow bias, conflict ofinterest or undue influence of others to override professional orbusiness judgments.(c) Professional Competence and Due CareA professional accountant has a continuing duty to maintainprofessional knowledge and skill at the level required to ensurethat a client or employer receives competent professional servicebased on current developments in practice, legislation andtechniques. A professional accountant should act diligently and inaccordance with applicable technical and professional standardswhen providing professional services.(d) ConfidentialityA professional accountant should respect the confidentiality ofinformation acquired as a result of professional and businessrelationships and should not disclose any such information to thirdparties without proper and specific authority unless there is a legalor professional right or duty to disclose. Confidential informationacquired as a result of professional and business relationshipsshould not be used for the personal advantage of the professionalaccountant or third parties.(e) Professional BehaviorA professional accountant should comply with relevant laws andregulations and should avoid any action that discredits theprofession.Each of these fundamental principles is discussed in more detail inSections 110 150.Conceptual Framework Approach100.5 The circumstances in which professional accountants operate may giverise to specific threats to compliance with the fundamental principles. It isimpossible to define every situation that creates such threats and specifythe appropriate mitigating action. In addition, the nature of engagementsand work assignments may differ and consequently different threats mayexist, requiring the application of different safeguards. A conceptualframework that requires a professional accountant to identify, evaluateand address threats to compliance with the fundamental principles, ratherthan merely comply with a set of specific rules which may be arbitrary, See Definitions. 20. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSis, therefore, in the public interest. This Code provides a framework toassist a professional accountant to identify, evaluate and respond tothreats to compliance with the fundamental principles. If identified threatsare other than clearly insignificant, a professional accountant should,where appropriate, apply safeguards to eliminate the threats or reducethem to an acceptable level, such that compliance with the fundamentalprinciples is not compromised.100.6 A professional accountant has an obligation to evaluate any threats tocompliance with the fundamental principles when the professionalaccountant knows, or could reasonably be expected to know, ofcircumstances or relationships that may compromise compliance with thefundamental principles.100.7 A professional accountant should take qualitative as well as quantitativefactors into account when considering the significance of a threat. If aprofessional accountant cannot implement appropriate safeguards, theprofessional accountant should decline or discontinue the specificprofessional service involved, or where necessary resign from the client(in the case of a professional accountant in public practice) or theemploying organization (in the case of a professional accountant inbusiness).100.8 A professional accountant may inadvertently violate a provision of thisCode. Such an inadvertent violation, depending on the nature andsignificance of the matter, may not compromise compliance with thefundamental principles provided, once the violation is discovered, theviolation is corrected promptly and any necessary safeguards are applied.100.9 Parts B and C of this Code include examples that are intended to illustratehow the conceptual framework is to be applied. The examples are notintended to be, nor should they be interpreted as, an exhaustive list of allcircumstances experienced by a professional accountant that may createthreats to compliance with the fundamental principles. Consequently, it isnot sufficient for a professional accountant merely to comply with theexamples presented; rather, the framework should be applied to theparticular circumstances encountered by the professional accountant.Threats and Safeguards100.10 Compliance with the fundamental principles may potentially bethreatened by a broad range of circumstances. Many threats fall into thefollowing categories:ETHICS 18 21. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS19 ETHICSETHICS(a) Self-interest threats, which may occur as a result of the financial orother interests of a professional accountant or of an immediate orclose family member;(b) Self-review threats, which may occur when a previous judgmentneeds to be re-evaluated by the professional accountant responsiblefor that judgment;(c) Advocacy threats, which may occur when a professionalaccountant promotes a position or opinion to the point thatsubsequent objectivity may be compromised;(d) Familiarity threats, which may occur when, because of a closerelationship, a professional accountant becomes too sympathetic tothe interests of others; and(e) Intimidation threats, which may occur when a professionalaccountant may be deterred from acting objectively by threats,actual or perceived.Parts B and C of this Code, respectively, provide examples ofcircumstances that may create these categories of threats for professionalaccountants in public practice and professional accountants in business.Professional accountants in public practice may also find the guidance inPart C relevant to their particular circumstances.100.11 Safeguards that may eliminate or reduce such threats to an acceptablelevel fall into two broad categories:(a) Safeguards created by the profession, legislation or regulation; and(b) Safeguards in the work environment.100.12 Safeguards created by the profession, legislation or regulation include,but are not restricted to: Educational, training and experience requirements for entry intothe profession. Continuing professional development requirements. Corporate governance regulations. Professional standards. Professional or regulatory monitoring and disciplinary procedures. See Definitions. 22. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS External review by a legally empowered third party of the reports,returns, communications or information produced by a professionalaccountant.100.13 Parts B and C of this Code, respectively, discuss safeguards in the workenvironment for professional accountants in public practice and those inbusiness.100.14 Certain safeguards may increase the likelihood of identifying or deterringunethical behavior. Such safeguards, which may be created by theaccounting profession, legislation, regulation or an employingorganization, include, but are not restricted to: Effective, well publicized complaints systems operated by theemploying organization, the profession or a regulator, whichenable colleagues, employers and members of the public to drawattention to unprofessional or unethical behavior. An explicitly stated duty to report breaches of ethical requirements.100.15 The nature of the safeguards to be applied will vary depending on thecircumstances. In exercising professional judgment, a professionalaccountant should consider what a reasonable and informed third party,having knowledge of all relevant information, including the significanceof the threat and the safeguards applied, would conclude to beunacceptable.Ethical Conflict Resolution100.16 In evaluating compliance with the fundamental principles, a professionalaccountant may be required to resolve a conflict in the application offundamental principles.100.17 When initiating either a formal or informal conflict resolution process, aprofessional accountant should consider the following, either individuallyor together with others, as part of the resolution process:(a) Relevant facts;(b) Ethical issues involved;(c) Fundamental principles related to the matter in question;(d) Established internal procedures; and(e) Alternative courses of action.Having considered these issues, a professional accountant shoulddetermine the appropriate course of action that is consistent with thefundamental principles identified. The professional accountant shouldalso weigh the consequences of each possible course of action. If thematter remains unresolved, the professional accountant should consultETHICS 20 23. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS21 ETHICSETHICSwith other appropriate persons within the firm* or employingorganization for help in obtaining resolution.100.18 Where a matter involves a conflict with, or within, an organization, aprofessional accountant should also consider consulting with thosecharged with governance of the organization, such as the board ofdirectors or the audit committee.100.19 It may be in the best interests of the professional accountant to documentthe substance of the issue and details of any discussions held or decisionstaken, concerning that issue.100.20 If a significant conflict cannot be resolved, a professional accountant maywish to obtain professional advice from the relevant professional body orlegal advisors, and thereby obtain guidance on ethical issues withoutbreaching confidentiality. For example, a professional accountant mayhave encountered a fraud, the reporting of which could breach theprofessional accountants responsibility to respect confidentiality. Theprofessional accountant should consider obtaining legal advice todetermine whether there is a requirement to report.100.21 If, after exhausting all relevant possibilities, the ethical conflict remainsunresolved, a professional accountant should, where possible, refuse toremain associated with the matter creating the conflict. The professionalaccountant may determine that, in the circumstances, it is appropriate towithdraw from the engagement team or specific assignment, or toresign altogether from the engagement, the firm or the employingorganization. See Definitions. 24. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION 110Integrity110.1 The principle of integrity imposes an obligation on all professionalaccountants to be straightforward and honest in professional and businessrelationships. Integrity also implies fair dealing and truthfulness.110.2 A professional accountant should not be associated with reports, returns,communications or other information where they believe that theinformation:(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 suchomission or obscurity would be misleading.110.3 A professional accountant will not be considered to be in breach ofparagraph 110.2 if the professional accountant provides a modified reportin respect of a matter contained in paragraph 110.2.ETHICS 22 25. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS23 ETHICSETHICSSECTION 120Objectivity120.1 The principle of objectivity imposes an obligation on all professionalaccountants not to compromise their professional or business judgmentbecause of bias, conflict of interest or the undue influence of others.120.2 A professional accountant may be exposed to situations that may impairobjectivity. It is impracticable to define and prescribe all such situations.Relationships that bias or unduly influence the professional judgment ofthe professional accountant should be avoided. 26. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION 130Professional Competence and Due Care130.1 The principle of professional competence and due care imposes thefollowing obligations on professional accountants:(a) To maintain professional knowledge and skill at the level requiredto ensure that clients or employers receive competent professionalservice; and(b) To act diligently in accordance with applicable technical andprofessional standards when providing professional services.130.2 Competent professional service requires the exercise of sound judgmentin applying professional knowledge and skill in the performance of suchservice. Professional competence may be divided into two separatephases:(a) Attainment of professional competence; and(b) Maintenance of professional competence.130.3 The maintenance of professional competence requires a continuingawareness and an understanding of relevant technical professional andbusiness developments. Continuing professional development developsand maintains the capabilities that enable a professional accountant toperform competently within the professional environments.130.4 Diligence encompasses the responsibility to act in accordance with therequirements of an assignment, carefully, thoroughly and on a timelybasis.130.5 A professional accountant should take steps to ensure that those workingunder the professional accountants authority in a professional capacityhave appropriate training and supervision.130.6 Where appropriate, a professional accountant should make clients,employers or other users of the professional services aware of limitationsinherent in the services to avoid the misinterpretation of an expression ofopinion as an assertion of fact.ETHICS 24 27. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS25 ETHICSETHICSSECTION 140Confidentiality140.1 The principle of confidentiality imposes an obligation on professionalaccountants to refrain from:(a) Disclosing outside the firm or employing organization confidentialinformation acquired as a result of professional and businessrelationships without proper and specific authority or unless thereis a legal or professional right or duty to disclose; and(b) Using confidential information acquired as a result of professionaland business relationships to their personal advantage or theadvantage of third parties.140.2 A professional accountant should maintain confidentiality even in a socialenvironment. The professional accountant should be alert to thepossibility of inadvertent disclosure, particularly in circumstancesinvolving long association with a business associate or a close orimmediate family member.140.3 A professional accountant should also maintain confidentiality ofinformation disclosed by a prospective client or employer.140.4 A professional accountant should also consider the need to maintainconfidentiality of information within the firm or employing organization.140.5 A professional accountant should take all reasonable steps to ensure thatstaff under the professional accountants control and persons from whomadvice and assistance is obtained respect the professional accountantsduty of confidentiality.140.6 The need to comply with the principle of confidentiality continues evenafter the end of relationships between a professional accountant and aclient or employer. When a professional accountant changes employmentor acquires a new client, the professional accountant is entitled to useprior experience. The professional accountant should not, however, use ordisclose any confidential information either acquired or received as aresult of a professional or business relationship.140.7 The following are circumstances where professional accountants are ormay be required to disclose confidential information or when suchdisclosure may be appropriate:(a) Disclosure is permitted by law and is authorized by the client orthe employer; See Definitions. 28. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS(b) Disclosure is required by law, for example:(i) Production of documents or other provision of evidence inthe course of legal proceedings; or(ii) Disclosure to the appropriate public authorities ofinfringements of the law that come to light; and(c) There is a professional duty or right to disclose, when notprohibited by law:(i) To comply with the quality review of a member body orprofessional body;(ii) To respond to an inquiry or investigation by a member bodyor regulatory body;(iii) To protect the professional interests of a professionalaccountant in legal proceedings; or(iv) To comply with technical standards and ethics requirements.140.8 In deciding whether to disclose confidential information, professionalaccountants should consider the following points:(a) Whether the interests of all parties, including third parties whoseinterests may be affected, could be harmed if the client oremployer consents to the disclosure of information by theprofessional accountant;(b) Whether all the relevant information is known and substantiated, tothe extent it is practicable; when the situation involvesunsubstantiated facts, incomplete information or unsubstantiatedconclusions, professional judgment should be used in determiningthe type of disclosure to be made, if any; and(c) The type of communication that is expected and to whom it isaddressed; in particular, professional accountants should besatisfied that the parties to whom the communication is addressedare appropriate recipients.ETHICS 26 29. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS27 ETHICSETHICSSECTION 150Professional Behavior150.1 The principle of professional behavior imposes an obligation onprofessional accountants to comply with relevant laws and regulationsand avoid any action that may bring discredit to the profession. Thisincludes actions which a reasonable and informed third party, havingknowledge of all relevant information, would conclude negatively affectsthe good reputation of the profession.150.2 In marketing and promoting themselves and their work, professionalaccountants should not bring the profession into disrepute. Professionalaccountants should be honest and truthful and should not:(a) Make exaggerated claims for the services they are able to offer, thequalifications they possess, or experience they have gained; or(b) Make disparaging references or unsubstantiated comparisons to thework of others. 30. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSPART BPROFESSIONAL ACCOUNTANTS IN PUBLICPRACTICEETHICS 28PageSection 200 Introduction ................................................................................ 29Section 210 Professional Appointment .......................................................... 35Section 220 Conflicts of Interest .................................................................... 39Section 230 Second Opinions ........................................................................ 41Section 240 Fees and Other Types of Remuneration ..................................... 42Section 250 Marketing Professional Services ................................................ 45Section 260 Gifts and Hospitality .................................................................. 46Section 270 Custody of Client Assets ............................................................ 47Section 280 ObjectivityAll Services .......................................................... 48Section 290 IndependenceAssurance Engagements ................................... 49 31. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS29 ETHICSETHICSSECTION 200Introduction200.1 This Part of the Code illustrates how the conceptual framework containedin Part A is to be applied by professional accountants in public practice.The examples in the following sections are not intended to be, nor shouldthey be interpreted as, an exhaustive list of all circumstances experiencedby a professional accountant in public practice that may create threats tocompliance with the principles. Consequently, it is not sufficient for aprofessional accountant in public practice merely to comply with theexamples presented; rather, the framework should be applied to theparticular circumstances faced.200.2 A professional accountant in public practice should not engage in anybusiness, occupation or activity that impairs or might impair integrity,objectivity or the good reputation of the profession and as a result wouldbe incompatible with the rendering of professional services.Threats and Safeguards200.3 Compliance with the fundamental principles may potentially bethreatened by a broad range of circumstances. Many threats fall into thefollowing categories:(a) Self-interest;(b) Self-review;(c) Advocacy;(d) Familiarity; and(e) Intimidation.These threats are discussed further in Part A of this Code.The nature and significance of the threats may differ depending onwhether they arise in relation to the provision of services to a financialstatement audit client, a non-financial statement audit assuranceclient* or a non-assurance client.200.4 Examples of circumstances that may create self-interest threats for aprofessional accountant in public practice include, but are not limited to: A financial interest* in a client or jointly holding a financialinterest with a client. Undue dependence on total fees from a client. See Definitions. 32. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS Having a close business relationship with a client. Concern about the possibility of losing a client. Potential employment with a client. Contingent fees* relating to an assurance engagement. A loan to or from an assurance client or any of its directors orofficers.200.5 Examples of circumstances that may create self-review threats include,but are not limited to: The discovery of a significant error during a re-evaluation of thework of the professional accountant in public practice. Reporting on the operation of financial systems after beinginvolved in their design or implementation. Having prepared the original data used to generate records that arethe subject matter of the engagement. A member of the assurance team being, or having recently been,a director or officer* of that client. A member of the assurance team being, or having recently been,employed by the client in a position to exert direct and significantinfluence over the subject matter of the engagement. Performing a service for a client that directly affects the subjectmatter of the assurance engagement.200.6 Examples of circumstances that may create advocacy threats include, but arenot limited to: Promoting shares in a listed entity* when that entity is a financialstatement audit client. Acting as an advocate on behalf of an assurance client in litigationor disputes with third parties.200.7 Examples of circumstances that may create familiarity threats include, but arenot limited to: A member of the engagement team having a close or immediatefamily relationship with a director or officer of the client. A member of the engagement team having a close or immediatefamily relationship with an employee of the client who is in a See Definitions.ETHICS 30 33. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS31 ETHICSETHICSposition to exert direct and significant influence over the subjectmatter of the engagement. A former partner of the firm being a director or officer of the clientor an employee in a position to exert direct and significantinfluence over the subject matter of the engagement. Accepting gifts or preferential treatment from a client, unless thevalue is clearly insignificant. Long association of senior personnel with the assurance client.200.8 Examples of circumstances that may create intimidation threats include,but are not limited to: Being threatened with dismissal or replacement in relation to aclient engagement. Being threatened with litigation. Being pressured to reduce inappropriately the extent of workperformed in order to reduce fees.200.9 A professional accountant in public practice may also find that specificcircumstances give rise to unique threats to compliance with one or moreof the fundamental principles. Such unique threats obviously cannot becategorized. In either professional or business relationships, aprofessional accountant in public practice should always be on the alertfor such circumstances and threats.200.10 Safeguards that may eliminate or reduce threats to an acceptable level fallinto two broad categories:(a) Safeguards created by the profession, legislation or regulation; and(b) Safeguards in the work environment.Examples of safeguards created by the profession, legislation orregulation are described in paragraph 100.12 of Part A of this Code.200.11 In the work environment, the relevant safeguards will vary depending onthe circumstances. Work environment safeguards comprise firm-widesafeguards and engagement specific safeguards. A professionalaccountant in public practice should exercise judgment to determine howto best deal with an identified threat. In exercising this judgment aprofessional accountant in public practice should consider what areasonable and informed third party, having knowledge of all relevantinformation, including the significance of the threat and the safeguardsapplied, would reasonably conclude to be acceptable. This considerationwill be affected by matters such as the significance of the threat, thenature of the engagement and the structure of the firm. 34. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS200.12 Firm-wide safeguards in the work environment may include: Leadership of the firm that stresses the importance of compliancewith the fundamental principles. Leadership of the firm that establishes the expectation thatmembers of an assurance team will act in the public interest. Policies and procedures to implement and monitor quality controlof engagements. Documented policies regarding the identification of threats tocompliance with the fundamental principles, the evaluation of thesignificance of these threats and the identification and theapplication of safeguards to eliminate or reduce the threats, otherthan those that are clearly insignificant, to an acceptable level. For firms that perform assurance engagements, documentedindependence policies regarding the identification of threats toindependence, the evaluation of the significance of these threatsand the evaluation and application of safeguards to eliminate orreduce the threats, other than those that are clearly insignificant, toan acceptable level. Documented internal policies and procedures requiring compliancewith the fundamental principles. Policies and procedures that will enable the identification ofinterests or relationships between the firm or members ofengagement teams and clients. Policies and procedures to monitor and, if necessary, manage thereliance on revenue received from a single client. Using different partners and engagement teams with separatereporting lines for the provision of non-assurance services to anassurance client. Policies and procedures to prohibit individuals who are notmembers of an engagement team from inappropriately influencingthe outcome of the engagement. Timely communication of a firms policies and procedures,including any changes to them, to all partners and professionalstaff, and appropriate training and education on such policies andprocedures. See Definitions.ETHICS 32 35. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS33 ETHICSETHICS Designating a member of senior management to be responsible foroverseeing the adequate functioning of the firms quality controlsystem. Advising partners and professional staff of those assurance clientsand related entities from which they must be independent. A disciplinary mechanism to promote compliance with policiesand procedures. Published policies and procedures to encourage and empower staffto communicate to senior levels within the firm any issue relatingto compliance with the fundamental principles that concerns them.200.13 Engagement-specific safeguards in the work environment may include: Involving an additional professional accountant to review the workdone or otherwise advise as necessary. Consulting an independent third party, such as a committee ofindependent directors, a professional regulatory body or anotherprofessional accountant. Discussing ethical issues with those charged with governance ofthe client. Disclosing to those charged with governance of the client thenature of services provided and extent of fees charged. Involving another firm to perform or re-perform part of theengagement. Rotating senior assurance team personnel.200.14 Depending on the nature of the engagement, a professional accountant inpublic practice may also be able to rely on safeguards that the client hasimplemented. However it is not possible to rely solely on such safeguardsto reduce threats to an acceptable level.200.15 Safeguards within the clients systems and procedures may include: When a client appoints a firm in public practice to perform anengagement, persons other than management ratify or approve theappointment. The client has competent employees with experience and seniorityto make managerial decisions. The client has implemented internal procedures that ensureobjective choices in commissioning non-assurance engagements. 36. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS The client has a corporate governance structure that providesappropriate oversight and communications regarding the firmsservices.ETHICS 34 37. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS35 ETHICSETHICSSECTION 210Professional AppointmentClient Acceptance210.1 Before accepting a new client relationship, a professional accountant inpublic practice should consider whether acceptance would create anythreats to compliance with the fundamental principles. Potential threats tointegrity or professional behavior may be created from, for example,questionable issues associated with the client (its owners, managementand activities).210.2 Client issues that, if known, could threaten compliance with thefundamental principles include, for example, client involvement in illegalactivities (such as money laundering), dishonesty or questionablefinancial reporting practices.210.3 The significance of any threats should be evaluated. If identified threatsare other than clearly insignificant, safeguards should be considered andapplied as necessary to eliminate them or reduce them to an acceptablelevel.210.4 Appropriate safeguards may include obtaining knowledge andunderstanding of the client, its owners, managers and those responsiblefor its governance and business activities, or securing the clientscommitment to improve corporate governance practices or internalcontrols.210.5 Where it is not possible to reduce the threats to an acceptable level, aprofessional accountant in public practice should decline to enter into theclient relationship.210.6 Acceptance decisions should be periodically reviewed for recurring clientengagements.Engagement Acceptance210.7 A professional accountant in public practice should agree to provide onlythose services that the professional accountant in public practice iscompetent to perform. Before accepting a specific client engagement, aprofessional accountant in public practice should consider whetheracceptance would create any threats to compliance with the fundamentalprinciples. For example, a self-interest threat to professional competenceand due care is created if the engagement team does not possess, orcannot acquire, the competencies necessary to properly carry out theengagement.210.8 A professional accountant in public practice should evaluate thesignificance of identified threats and, if they are other than clearly 38. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSinsignificant, safeguards should be applied as necessary to eliminate themor reduce them to an acceptable level. Such safeguards may include: Acquiring an appropriate understanding of the nature of theclients business, the complexity of its operations, the specificrequirements of the engagement and the purpose, nature and scopeof the work to be performed. Acquiring knowledge of relevant industries or subject matters. Possessing or obtaining experience with relevant regulatory orreporting requirements. Assigning sufficient staff with the necessary competencies. Using experts where necessary. Agreeing on a realistic time frame for the performance of theengagement. Complying with quality control policies and procedures designedto provide reasonable assurance that specific engagements areaccepted only when they can be performed competently.210.9 When a professional accountant in public practice intends to rely on theadvice or work of an expert, the professional accountant in public practiceshould evaluate whether such reliance is warranted. The professionalaccountant in public practice should consider factors such as reputation,expertise, resources available and applicable professional and ethicalstandards. Such information may be gained from prior association withthe expert or from consulting others.Changes in a Professional Appointment210.10 A professional accountant in public practice who is asked to replaceanother professional accountant in public practice, or who is consideringtendering for an engagement currently held by another professionalaccountant in public practice, should determine whether there are anyreasons, professional or other, for not accepting the engagement, such ascircumstances that threaten compliance with the fundamental principles.For example, there may be a threat to professional competence and duecare if a professional accountant in public practice accepts theengagement before knowing all the pertinent facts.210.11 The significance of the threats should be evaluated. Depending on thenature of the engagement, this may require direct communication with theexisting accountant to establish the facts and circumstances behind the See Definitions.ETHICS 36 39. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS37 ETHICSETHICSproposed change so that the professional accountant in public practice candecide whether it would be appropriate to accept the engagement. Forexample, the apparent reasons for the change in appointment may notfully reflect the facts and may indicate disagreements with the existingaccountant that may influence the decision as to whether to accept theappointment.210.12 An existing accountant is bound by confidentiality. The extent to whichthe professional accountant in public practice can and should discuss theaffairs of a client with a proposed accountant will depend on the nature ofthe engagement and on:(a) Whether the clients permission to do so has been obtained; or(b) The legal or ethical requirements relating to such communicationsand disclosure, which may vary by jurisdiction.210.13 In the absence of specific instructions by the client, an existingaccountant should not ordinarily volunteer information about the clientsaffairs. Circumstances where it may be appropriate to discloseconfidential information are set out in Section 140 of Part A of this Code.210.14 If identified threats are other than clearly insignificant, safeguards shouldbe considered and applied as necessary to eliminate them or reduce themto an acceptable level.210.15 Such safeguards may include: Discussing the clients affairs fully and freely with the existingaccountant. Asking the existing accountant to provide known information onany facts or circumstances that, in the existing accountantsopinion, the proposed accountant should be aware of beforedeciding whether to accept the engagement. When replying to requests to submit tenders, stating in the tenderthat, before accepting the engagement, contact with the existingaccountant will be requested so that inquiries may be made as towhether there are any professional or other reasons why theappointment should not be accepted.210.16 A professional accountant in public practice will ordinarily need to obtainthe clients permission, preferably in writing, to initiate discussion withan existing accountant. Once that permission is obtained, the existingaccountant should comply with relevant legal and other regulationsgoverning such requests. Where the existing accountant providesinformation, it should be provided honestly and unambiguously. If theproposed accountant is unable to communicate with the existingaccountant, the proposed accountant should try to obtain information 40. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSabout any possible threats by other means such as through inquiries ofthird parties or background investigations on senior management or thosecharged with governance of the client.210.17 Where the threats cannot be eliminated or reduced to an acceptable levelthrough the application of safeguards, a professional accountant in publicpractice should, unless there is satisfaction as to necessary facts by othermeans, decline the engagement.210.18 A professional accountant in public practice may be asked to undertakework that is complementary or additional to the work of the existingaccountant. Such circumstances may give rise to potential threats toprofessional competence and due care resulting from, for example, a lackof or incomplete information. Safeguards against such threats includenotifying the existing accountant of the proposed work, which would givethe existing accountant the opportunity to provide any relevantinformation needed for the proper conduct of the work.ETHICS 38 41. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS39 ETHICSETHICSSECTION 220Conflicts of Interest220.1 A professional accountant in public practice should take reasonable stepsto identify circumstances that could pose a conflict of interest. Suchcircumstances may give rise to threats to compliance with thefundamental principles. For example, a threat to objectivity may becreated when a professional accountant in public practice competesdirectly with a client or has a joint venture or similar arrangement with amajor competitor of a client. A threat to objectivity or confidentiality mayalso be created when a professional accountant in public practiceperforms services for clients whose interests are in conflict or the clientsare in dispute with each other in relation to the matter or transaction inquestion.220.2 A professional accountant in public practice should evaluate thesignificance of any threats. Evaluation includes considering, beforeaccepting or continuing a client relationship or specific engagement,whether the professional accountant in public practice has any businessinterests, or relationships with the client or a third party that could giverise to threats. If threats are other than clearly insignificant, safeguardsshould be considered and applied as necessary to eliminate them orreduce them to an acceptable level.220.3 Depending upon the circumstances giving rise to the conflict, safeguardsshould ordinarily include the professional accountant in public practice:(a) Notifying the client of the firms business interest or activities thatmay represent a conflict of interest, and obtaining their consent toact in such circumstances; or(b) Notifying all known relevant parties that the professionalaccountant in public practice is acting for two or more parties inrespect of a matter where their respective interests are in conflict,and obtaining their consent to so act; or(c) Notifying the client that the professional accountant in publicpractice does not act exclusively for any one client in the provisionof proposed services (for example, in a particular market sector orwith respect to a specific service) and obtaining their consent to soact.220.4 The following additional safeguards should also be considered:(a) The use of separate engagement teams; and(b) Procedures to prevent access to information (e.g., strict physicalseparation of such teams, confidential and secure data filing); and 42. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS(c) Clear guidelines for members of the engagement team on issues ofsecurity and confidentiality; and(d) The use of confidentiality agreements signed by employees andpartners of the firm; and(e) Regular review of the application of safeguards by a seniorindividual not involved with relevant client engagements.220.5 Where a conflict of interest poses a threat to one or more of thefundamental principles, including objectivity, confidentiality orprofessional behavior, that cannot be eliminated or reduced to anacceptable level through the application of safeguards, the professionalaccountant in public practice should conclude that it is not appropriate toaccept a specific engagement or that resignation from one or moreconflicting engagements is required.220.6 Where a professional accountant in public practice has requested consentfrom a client to act for another party (which may or may not be anexisting client) in respect of a matter where the respective interests are inconflict and that consent has been refused by the client, then theprofessional accountant in public practice must not continue to act for oneof the parties in the matter giving rise to the conflict of interest.ETHICS 40 43. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS41 ETHICSETHICSSECTION 230Second Opinions230.1 Situations where a professional accountant in public practice is asked toprovide a second opinion on the application of accounting, auditing,reporting or other standards or principles to specific circumstances ortransactions by or on behalf of a company or an entity that is not anexisting client may give rise to threats to compliance with thefundamental principles. For example, there may be a threat toprofessional competence and due care in circumstances where the secondopinion is not based on the same set of facts that were made available tothe existing accountant, or is based on inadequate evidence. Thesignificance of the threat will depend on the circumstances of the requestand all the other available facts and assumptions relevant to theexpression of a professional judgment.230.2 When asked to provide such an opinion, a professional accountant inpublic practice should evaluate the significance of the threats and, if theyare other than clearly insignificant, safeguards should be considered andapplied as necessary to eliminate them or reduce them to an acceptablelevel. Such safeguards may include seeking client permission to contactthe existing accountant, describing the limitations surrounding anyopinion in communications with the client and providing the existingaccountant with a copy of the opinion.230.3 If the company or entity seeking the opinion will not permitcommunication with the existing accountant, a professional accountant inpublic practice should consider whether, taking all the circumstances intoaccount, it is appropriate to provide the opinion sought. 44. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION 240Fees and Other Types of Remuneration240.1 When entering into negotiations regarding professional services, aprofessional accountant in public practice may quote whatever feedeemed to be appropriate. The fact that one professional accountant inpublic practice may quote a fee lower than another is not in itselfunethical. Nevertheless, there may be threats to compliance with thefundamental principles arising from the level of fees quoted. Forexample, a self-interest threat to professional competence and due care iscreated if the fee quoted is so low that it may be difficult to perform theengagement in accordance with applicable technical and professionalstandards for that price.240.2 The significance of such threats will depend on factors such as the levelof fee quoted and the services to which it applies. In view of thesepotential threats, safeguards should be considered and applied asnecessary to eliminate them or reduce them to an acceptable level.Safeguards which may be adopted include: Making the client aware of the terms of the engagement and, inparticular, the basis on which fees are charged and which servicesare covered by the quoted fee. Assigning appropriate time and qualified staff to the task.240.3 Contingent fees are widely used for certain types of non-assuranceengagements.1 They may, however, give rise to threats to compliancewith the fundamental principles in certain circumstances. They may giverise to a self-interest threat to objectivity. The significance of such threatswill depend on factors including: The nature of the engagement. The range of possible fee amounts. The basis for determining the fee. Whether the outcome or result of the transaction is to be reviewedby an independent third party.240.4 The significance of such threats should be evaluated and, if they are otherthan clearly insignificant, safeguards should be considered and applied asnecessary to eliminate or reduce them to an acceptable level. Suchsafeguards may include:1 Contingent fees for non-assurance services provided to assurance clients are discussed in Section290 of this part of the Code.ETHICS 42 45. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS43 ETHICSETHICS An advance written agreement with the client as to the basis ofremuneration. Disclosure to intended users of the work performed by theprofessional accountant in public practice and the basis ofremuneration. Quality control policies and procedures. Review by an objective third party of the work performed by theprofessional accountant in public practice.240.5 In certain circumstances, a professional accountant in public practice mayreceive a referral fee or commission relating to a client. For example,where the professional accountant in public practice does not provide thespecific service required, a fee may be received for referring a continuingclient to another professional accountant in public practice or otherexpert. A professional accountant in public practice may receive acommission from a third party (e.g., a software vendor) in connectionwith the sale of goods or services to a client. Accepting such a referral feeor commission may give rise to self-interest threats to objectivity andprofessional competence and due care.240.6 A professional accountant in public practice may also pay a referral fee toobtain a client, for example, where the client continues as a client ofanother professional accountant in public practice but requires specialistservices not offered by the existing accountant. The payment of such areferral fee may also create a self-interest threat to objectivity andprofessional competence and due care.240.7 A professional accountant in public practice should not pay or receive areferral fee or commission, unless the professional accountant in publicpractice has established safeguards to eliminate the threats or reduce themto an acceptable level. Such safeguards may include: Disclosing to the client any arrangements to pay a referral fee toanother professional accountant for the work referred. Disclosing to the client any arrangements to receive a referral feefor referring the client to another professional accountant in publicpractice. Obtaining advance agreement from the client for commissionarrangements in connection with the sale by a third party of goodsor services to the client.240.8 A professional accountant in public practice may purchase all or part ofanother firm on the basis that payments will be made to individualsformerly owning the firm or to their heirs or estates. Such payments are 46. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSnot regarded as commissions or referral fees for the purpose of paragraph240.5240.7 above.ETHICS 44 47. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS45 ETHICSETHICSSECTION 250Marketing Professional Services250.1 When a professional accountant in public practice solicits new workthrough advertising or other forms of marketing, there may be potentialthreats to compliance with the fundamental principles. For example, aself-interest threat to compliance with the principle of professionalbehavior is created if services, achievements or products are marketed ina way that is inconsistent with that principle.250.2 A professional accountant in public practice should not bring theprofession into disrepute when marketing professional services. Theprofessional accountant in public practice should be honest and truthfuland should not: Make exaggerated claims for services offered, qualificationspossessed or experience gained; or Make disparaging references to unsubstantiated comparisons to thework of another.If the professional accountant in public practice is in doubt whether aproposed form of advertising or marketing is appropriate, the professionalaccountant in public practice should consult with the relevant professionalbody. See Definitions. 48. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION 260Gifts and Hospitality260.1 A professional accountant in public practice, or an immediate or closefamily member, may be offered gifts and hospitality from a client. Suchan offer ordinarily gives rise to threats to compliance with thefundamental principles. For example, self-interest threats to objectivitymay be created if a gift from a client is accepted; intimidation threats toobjectivity may result from the possibility of such offers being madepublic.260.2 The significance of such threats will depend on the nature, value andintent behind the offer. Where gifts or hospitality which a reasonable andinformed third party, having knowledge of all relevant information,would consider clearly insignificant are made a professional accountantin public practice may conclude that the offer is made in the normalcourse of business without the specific intent to influence decisionmaking or to obtain information. In such cases, the professionalaccountant in public practice may generally conclude that there is nosignificant threat to compliance with the fundamental principles.260.3 If evaluated threats are other than clearly insignificant, safeguards shouldbe considered and applied as necessary to eliminate them or reduce themto an acceptable level. When the threats cannot be eliminated or reducedto an acceptable level through the application of safeguards, aprofessional accountant in public practice should not accept such an offer.ETHICS 46 49. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS47 ETHICSETHICSSECTION 270Custody of Client Assets270.1 A professional accountant in public practice should not assume custodyof client monies or other assets unless permitted to do so by law and, ifso, in compliance with any additional legal duties imposed on aprofessional accountant in public practice holding such assets.270.2 The holding of client assets creates threats to compliance with thefundamental principles; for example, there is a self-interest threat toprofessional behavior and may be a self interest threat to objectivityarising from holding client assets. To safeguard against such threats, aprofessional accountant in public practice entrusted with money (or otherassets) belonging to others should:(a) Keep such assets separately from personal or firm assets; and(b) Use such assets only for the purpose for which they are intended;and(c) At all times, be ready to account for those assets, and any income,dividends or gains generated, to any persons entitled to suchaccounting; and(d) Comply with all relevant laws and regulations relevant to theholding of and accounting for such assets.270.3 In addition, professional accountants in public practice should be awareof threats to compliance with the fundamental principles throughassociation with such assets, for example, if the assets were found toderive from illegal activities, such as money laundering. As part of clientand engagement acceptance procedures for such services, professionalaccountants in public practice should make appropriate inquiries aboutthe source of such assets and should consider their legal and regulatoryobligations. They may also consider seeking legal advice. 50. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSSECTION 280ObjectivityAll Services280.1 A professional accountant in public practice should consider whenproviding any professional service whether there are threats tocompliance with the fundamental principle of objectivity resulting fromhaving interests in, or relationships with, a client or directors, officers oremployees. For example, a familiarity threat to objectivity may be createdfrom a family or close personal or business relationship.280.2 A professional accountant in public practice who provides an assuranceservice is required to be independent of the assurance client.Independence of mind and in appearance is necessary to enable theprofessional accountant in public practice to express a conclusion, and beseen to express a conclusion, without bias, conflict of interest or undueinfluence of others. Section 290 provides specific guidance onindependence requirements for professional accountants in publicpractice when performing an assurance engagement.280.3 The existence of threats to objectivity when providing any professionalservice will depend upon the particular circumstances of the engagementand the nature of the work that the professional accountant in publicpractice is performing.280.4 A professional accountant in public practice should evaluate thesignificance of identified threats and, if they are other than clearlyinsignificant, safeguards should be considered and applied as necessary toeliminate them or reduce them to an acceptable level. Such safeguardsmay include: Withdrawing from the engagement team. Supervisory procedures. Terminating the financial or business relationship giving rise to thethreat. Discussing the issue with higher levels of management within thefirm. Discussing the issue with those charged with governance of theclient.ETHICS 48 51. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS49 ETHICSETHICSSECTION 2902IndependenceAssurance Engagements290.1 In the case of an assurance engagement it is in the public interest and,therefore, required by this Code of Ethics, that members of assuranceteams,* firms and, when applicable, network firms be independent ofassurance clients.290.2 Assurance engagements are designed to enhance intended users degreeof confidence about the outcome of the evaluation or measurement of asubject matter against criteria. The International Framework forAssurance Engagements (the Assurance Framework) issued by theInternational Auditing and Assurance Standards Board describes theelements and objectives of an assurance engagement, and identifiesengagements to which International Standards on Auditing (ISAs),International Standards on Review Engagements (ISREs) andInternational Standards on Assurance Engagements (ISAEs) apply. For adescription of the elements and objectives of an assurance engagementreference should be made to the Assurance Framework.290.3 As further explained in the Assurance Framework, in an assuranceengagement the professional accountant in public practice expresses aconclusion designed to enhance the degree of confidence of the intendedusers other than the responsible party about the outcome of the evaluationor measurement of a subject matter against criteria.290.4 The outcome of the evaluation or measurement of a subject matter is theinformation that results from applying the criteria to the subject matter.The term subject matter information is used to mean the outcome of theevaluation or measurement of subject matter. For example: The recognition, measurement, presentation and disclosurerepresented in the financial statements* (subject matterinformation) result from applying a financial reporting frameworkfor recognition, measurement, presentation and disclosure, such asInternational Financial Reporting Standards, (criteria) to an entitysfinancial position, financial performance and cash flows (subjectmatter). An assertion about the effectiveness of internal control (subjectmatter information) results from applying a framework for2 In July 2006, the International Ethics Standards Board for Accountants revised the definition ofnetwork firm used in Section 290. The revision to Section 290 is effective for assurance reportsdated on or after December 31, 2008 and is included in this handbook on page 124. See Definitions. 52. CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTSevaluating the effectiveness of internal control, such as COSO orCoCo, (criteria) to internal control, a process (subject matter).290.5 Assurance engagements may be assertion-based or direct reporting. Ineither case they involve three separate parties: a public accountant inpublic practice, a responsible party and intended users.290.6 In an assertion-based assurance engagement, which includes a financialstatement audit engagement, the evaluation or measurement of thesubject matter is performed by the responsible party, and the subjectmatter information is in the form of an assertion by the responsible partythat is made available to the intended users.290.7 In a direct reporting assurance engagement the professional accountant inpublic practice either directly performs the evaluation or measurement ofthe subject matter, or obtains a representation from the responsible partythat has performed the evaluation or measurement that is not available tothe intended users. The subject matter information is provided to theintended users in the assurance report.290.8 Independence requires:Independence of MindThe