Guidance to the ICAS Code of Ethics: Objectivity – Financial interests in, or relationships with, clients
Ann Buttery, Head of Ethics, ICAS Policy Leadership, introduces a new guidance paper to the ICAS Code of Ethics in relation to objectivity.
ICAS has published a new guidance paper - ‘Guidance to the ICAS Code of Ethics: Objectivity – Financial interests in, or relationships with, clients’ – which provides assistance on how to ensure adherence to the fundamental principle of objectivity when a CA or member firm has financial interests in and/or relationships (business, family or other personal) with their client.
The paper discusses some factors that a professional accountant might consider when making an assessment and provides case studies in its Appendix by way of illustration.
ICAS Code of Ethics - Objectivity
There are five fundamental ethics principles for all professional accountants enshrined within the ICAS Code of Ethics: integrity; objectivity; professional competence and due care; confidentiality; and professional behaviour.
The fundamental ethics principle of objectivity requires professional accountants “to exercise professional or business judgement without being compromised by:
(i) Bias;
(ii) Conflict of interest; or
(iii) Undue influence of, or undue reliance on, individuals, organisations, technology or other factors.”
The Code provides a conceptual framework that professional accountants shall apply to ensure adherence to the fundamental principles. The conceptual framework requires professional accountants to:
(a) Identify threats to compliance with the fundamental principles;
(b) Evaluate the threats identified; and
(c) Address the threats by eliminating them, or reducing them to an acceptable level by applying safeguards.
The Code also requires professional accountants to have an inquiring mind; to exercise professional judgement; and to apply the ‘reasonable and informed third-party test’.
Evaluating and addressing threats to ‘Objectivity’
There are clear threats to compliance with the fundamental principle of objectivity resulting from a firm or individual having interests in, or relationships with, a client or its directors, officers or employees. The threats need to be carefully considered prior to any interests or relationships being initiated. There will only be very limited circumstances when those threats can be addressed.
The existence of threats to objectivity, and the ability of the professional accountant to eliminate, or reduce the threats to an acceptable level, will depend upon the particular circumstances of the engagement and the nature of the work that the professional accountant is performing.
Some factors that a professional accountant might consider when making an assessment as to whether adherence to the fundamental ethics principle of objectivity can be met include the following and each is discussed in more detail in the guidance paper:
- Nature of the services being provided to the client
- Reasonable and informed third-party test
- Materiality
- Duration and frequency of a financial interest
- Capacity in which the professional accountant is acting
- Family, or other personal or business, arrangements
- Safeguards
The guidance paper also contains some example case studies to provide further assistance.
Ultimately, professional accountants will need to exercise professional judgement depending upon the facts and circumstances of each individual engagement, always considering the views of a reasonable and informed third-party, and it will be for the professional accountant to explain and justify their actions.
Documentation is encouraged throughout the decision-making process so that there is a record of the matters taken into consideration in reaching the judgement and action.
The full guidance or alternatively an "abridged version", which provides an outline of the key points within the full guidance paper, are both available for download.
ICAS ethics resources
Find out more about the ethics resources ICAS provides to support its Members below.