Changes to the ICAS Code of Ethics – documentation including fee arrangements
Ann Buttery reports on some of the main changes to the ICAS Code of Ethics, which take effect from 1 January 2020.
ICAS is adopting a new Revised and Restructured Code of Ethics with effect from 1 January 2020 which replaces the previous version (applicable from 1 November 2017).
The ICAS Code of Ethics is substantively based on the International Ethics Standards Board for Accountants (IESBA) Code of Ethics.
IESBA has undertaken a project to completely redesign its Code of Ethics. IESBA’s intention behind this restructuring of the Code was not to fundamentally change the substance of the Code, but to improve its clarity thereby making it more user friendly.
The main changes in the Code are in the following areas:
- The structure of the Code.
- An enhanced conceptual framework.
- Safeguards – a revised definition.
- Inducements (including gifts and hospitality) – inclusion of a new intent test.
- New and revised sections for Professional Accountants in Business (PAIBs) on pressure to breach the fundamental principles and preparation and presentation of information.
- Documentation
- Objectivity – loans and guarantees with clients
This article focuses on the main changes in relation to documentation.
Separate articles discuss the other main changes to the Code noted above.
Written confirmation of fee arrangements
Previously, Section 240.2B of the extant Code for Professional Accountants in Public Practice (PAPPs) provided the following ICAS guidance in relation to fee arrangements:
"240.2B The arrangements agreed ought to be confirmed in writing prior to the commencement of any engagement, normally in an engagement letter, including a confirmation of any estimate, quotation or other indication, and where the basis of future fees will differ from that of initial fees, the basis on which such fees will be rendered. Where there is no engagement letter the professional accountant in public practice ought to confirm the initial discussion in writing to the client as soon as practicable.”
Therefore, whilst ICAS encouraged confirmation of fee arrangements in writing in the extant Code of Ethics, with the use of the phrase “ought to”, it was not a requirement within the Code.
Under The Provision of Services Regulations SI 2009/2999 (the “Regulations”), where there is a pre-determined price for a particular type of service, providers are required to provide recipients of the service with the price (paragraph 8 (1)(l)). Where the price of the service is not pre-determined, the price must be provided on the request of the recipient, or, if an exact price cannot be given, the method for calculating the price, or a sufficiently detailed estimate, must be provided so that it can be checked by the recipient.(paragraph 9 (1) (a))
The Regulations require that the information is provided in “a clear and unambiguous manner” and in good time before the contract is concluded or before the service is provided when there is no written contract. (paragraph 11)
For information to be provided in a “clear and unambiguous manner” as per the Regulations, this would indicate that the information is required to be in writing. PAPPs are therefore already required under the Regulations to provide fee information in writing if the fee is on a pre-determined, or fixed fee, basis. ICAS has concluded that, in order to reduce threats to compliance with the fundamental principles, there should be a requirement within the Code of Ethics for all fee arrangements to be confirmed to clients in writing. As such, new section R330.3B now, with the use of the word “shall”, requires fee arrangements to be confirmed in writing, either in the engagement letter or in a separate fee letter.
Documentation
Previously there had been no guidance in the Code regarding documentation, other than specifically in relation to Non-Compliance with Laws and Regulations (NOCLAR) (Sections 225 and 360) and Independence (Sections 290 and 291). The importance of documentation is now discussed in various sections throughout the Restructured Code including in Section 110 “The Fundamental Principles” (paragraph 110.2 A3):
“Documentation is encouraged to document the substance of the issue, the details of any discussions, the decisions made, and the rationale for these decisions.”
ICAS very much encourages documentation throughout the ethical decision making process as highlighted in the ICAS publication “The Ethical Journey: The Right, the Good and the Virtuous”.