New ICAS Code of Ethics for 2020
Ann Buttery explains what’s new in the 2020 Revised and Restructured ICAS Code of Ethics.
ICAS is adopting a new Revised and Restructured Code of Ethics with effect from 1 January 2020. It replaces the current 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, which has been redesigned. IESBA’s primary intention behind this restructuring of the Code was not to fundamentally change the substance of the Code, but to improve its clarity and make it more user friendly. This project was completed in 2018.
The main changes to the ICAS Code of Ethics are set out below.
Structure of the Code
The Code is now divided into the following parts:
- Guide to the Code
- Part 1 – Complying with the Code, Fundamental Principles and Conceptual Framework – Applicable to all Professional Accountants (Sections 100 to 199).
- Part 2 – Applicable to Professional Accountants in Business (Sections 200 to 299). This is currently contained in Part C to the Code.
- Part 3 – Applicable to Professional Accountants in Public Practice (Sections 300 to 399). This is currently contained in Part B to the Code.
- Part 4 – International Independence Standards. This content is currently contained in Sections 290 and 291 to the Code.
- Part 5 – Applicable to Insolvency Practitioners.
Guide to the Code
This is not authoritative, but it provides a helpful introduction to the Code and how to use it.
The Code is broken down into sections which address specific topics. Each section has been reorganised into a more logical format with requirements now more clearly distinguished from application material. Requirements are highlighted in bold and designated by the letter “R”; application material is designated by the letter “A”.
Professional accountants in public practice (PAPPs) – Applicability of Parts 2 and 3
Previously Part C of the Code related to professional accountants in business (PAIB). In order to emphasise that the Code is applicable to all professional accountants, and not just those in public practice, the provisions relating to PAIBs have now been elevated to Part 2 of the Code.
The provisions in the Code are grouped into parts applicable to professional accountants in business, public practice, and insolvency respectively, although professional accountants may find any of them of use in relevant circumstances.
New and revised sections for PAIBs
There is a new section (Section 270) devoted to providing direction on how to deal with pressure to breach the fundamental principles. Section 220, “Preparation and presentation of information”, has also been extended.
ICAS help-sheets, guidance and case studies
Relevant help-sheets and guidance providing additional explanatory material are referenced at the end of the related sections of the Code. ICAS case studies provide additional guidance.
Enhanced Conceptual Framework
The Code requires professional accountants to comply with the fundamental ethics principles and to apply the conceptual framework to help in meeting this requirement.
While the Code is split into sections addressing specific circumstances, IESBA makes clear that there is the overarching requirement to adhere to the fundamental principles and apply the conceptual framework by highlighting this in the introduction to every section of the Code.
This is to emphasise that the individual sections within the Code should not be read in isolation and should always be read in conjunction with the fundamental principles and the conceptual framework.
Clarified conceptual framework
The restructured Code sets out the conceptual framework in a more logical and helpful format, which states that the professional accountant should:
(a) identify threats to compliance with the fundamental principles;
(b) evaluate the threats identified; and
(c) address the threats by eliminating or reducing them to an acceptable level.
It also requires the professional accountant to:
(a) exercise professional judgement;
(b) remain alert for new information or changes to the facts or circumstances and re-evaluate if necessary; and
(c) apply the “reasonable and informed third party test” when applying the conceptual framework.
The restructured Code provides a clearer, more affirmative, definition of “acceptable level” at paragraph 120.7 A1.
Reasonable and informed third party
The previous Code did not provide any guidance on who is a “reasonable and informed third party”. At paragraph 120.5 A4, the restructured Code elaborates on the test and clarifies that the “reasonable and informed third party” doesn’t have to be an accountant, but does have to be an objective, knowledgeable, experienced and informed third party who can and will impartially consider the appropriateness of the accountant’s conclusions– i.e. not an uninformed member of the public .
“Safeguards” are now defined in the restructured Code in Section 120.10 A2 as follows: “Safeguards are actions, individually or in combination, that the professional accountant takes that effectively reduce threats to compliance with the fundamental principles to an acceptable level.”
The previous Code considered “conditions, policies and procedures created by the profession, legislation or regulation” (such as training, CPD, regulatory monitoring) to be “safeguards”. This is no longer the case due to this definition.
IESBA believes that while the existence of these “conditions, policies and procedures” might help with the identification of threats and the evaluation of whether a threat is at an acceptable level, when threats are not at an acceptable level, the conceptual framework now requires the accountant to perform a specific action to reduce the threat to an acceptable level. Therefore the “conditions, policies and procedures created by the profession, legislation or regulation” previously considered to be “safeguards” are not the specific actions now required by the Code.
Instead, the Code now provides examples of specific actions that might be safeguards to address threats to compliance with the fundamental principles. For example:
- to address a self-interest threat, using an appropriate reviewer, who is not part of the team, to review the work performed; or
- to address the threat created by the offering or accepting of inducements, registering the inducement in a log maintained by the employing organisation of the accountant.
Inducements (Including Gifts and Hospitality) – New Intent Test
For both PAIBs (Section 250) and PAPPs (Section 340) there are new provisions pertaining to the offering or accepting of inducements, including gifts and hospitality. The term “inducement” is considered by IESBA to be neutral and does not necessarily mean there is intent to improperly influence another’s behaviour.
Some inducements may not be prohibited by laws and regulations but may still create a threat to compliance with the fundamental principles. The new provisions in the Code prohibit any inducements, given or received, where there is, or perceived to be, “intent” to improperly influence behaviour.
The key is whether it is considered that the inducement is intended to improperly influence behaviour. Even a gift having little intrinsic value might still affect the recipient’s behaviour. Therefore, even inducements that are “trivial and inconsequential” are not permitted if there is improper intent.
The application material in the Code discusses consideration of the nature, frequency, value, cumulative effect and timing of the inducement.
Where it is deemed that there is no intent to improperly influence behaviour, then the conceptual framework still needs to be applied to ascertain whether any threat is at an acceptable level. The only exemption from this is where the inducement is deemed to be trivial and inconsequential.
There is now a requirement for all fee arrangements to be confirmed in writing to clients, either in the engagement letter or in a separate fee letter. There is also increased emphasis on the importance of documentation throughout the ethical decision-making process. Documentation is 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.”
Objectivity – loans and guarantees with clients
The new Code contains an amendment to the requirements for professional accountants in public practice in relation to loans and guarantees with clients. In the previous version of the Code, Section 280 specifically prohibited the professional accountant from making loans to and receiving loans from clients. ICAS has made an amendment to the requirements in new Section 370 to bring the wording more in line with the requirements in relation to loans and guarantees with clients in the International Independence Standards (Parts 4A and 4B) of the 2020 Code. ICAS does not believe that this change in wording is a significant change in practice.
The amended requirements state that loans and guarantees with clients are not permitted to be made, or accepted, unless the loan or guarantee is immaterial to both parties, and appropriate safeguards have been applied to reduce the threats to objectivity to an acceptable level.