Code of professional conduct: CA’S in public practice

Examples of threats

-Advocacy

-Self - review

-Intimidation

-Familiarity

-Self-interest

Advocacy

-Promoting the interests or shares of a client .

-Acting as an advocate on behalf of an audit client in litigation / dispute s with third parties .

-Lobbying in favour of legislation on behalf of client

Self - review

-Issuing an assurance report on the effectiveness of the operation of financial systems after designing or implementing the systems .

-Preparing the original data used to generate records that are the subject matter of the assurance engagement

Intimidation

-Threatened with dismissal or replacement from client engagement

-Feeling pressured to agree with client's judgement as client has more expertise .

-Threat by partner that planned promotion will not occur .

-Accepted a significant gift from a client , and now threatening to make acceptance public .

Familiarity

-Member of the engagement team has :

-Close / immediat e family who is director / officer at client .

-Director / officer / employee with significant influence recently served as engagement partner .

-Long association with assurance client .

Self - interest

-Direct financial interest in assurance client .

-Quoting such a low engagement fee that it might be difficult to perform according to requirements .

-Significant close business relationship with assurance client .

-Having access to confidential information which can be used for personal gain .

-CA discovering significant error when evaluating results of previous professional service performed by member of CA's firm .

Safeguard to address self - interest

-Additional time and qualified personnel

-Disclosing referral fees / commission arrangements received

-Separating teams when dealing with matters of confidential nature

Safeguard to address self - review

appropriate reviewer ( not a member of the team )

Safeguard to address self - interest , advocacy or familiarity

different partners and engagement teams with separate reporting lines for non- assurance services to audit client

Safeguard to address: self - interest , self - review , advocacy . familiarity or intimidation

Another firm performs / reperforms part of engagement

Professional appointments

THREAT:

Client may be involved in illegal activities , dishonesty , questionable financial reporting practices or unethical behaviour .

Creates a self - interest threat to integrity or professional behaviour .

If the engagement team does not process or cannot acquire competencies to perform professional services : Creates a self - interest threat to professional competence and due care .

FACTORS:

Knowledge and understanding of the client , the industry , the owners , management and those charged with governance and business activities .

The client's commitment to addressing the questionable issue , for example through improving corporate governance practices and internal control .

Experience with relevant regulatory and reporting requirements .

There must be an appropriate understanding of :

-The nature of the client's business

-The complexity of its operations

-The requirements of the engagements , and

-The purpose , nature and scope of the work . Knowledge of relevant industries .

Experiences with relevant regulatory or reporting requirements .

SAFEGUARDS:

Assigning enough engagement personnel with the required competencies .

Agreeing on a realistic time frame for performance .

Using experts where needed .

CHANGES IN PROFESSIONAL APPOINTMENT

THREAT:

If a threat created by facts and circumstances cannot be corrected by applying a safeguard .

Self - interest threat to compliance with the principle of professional competence and due care if : An account accepts the engagement before knowing all the facts . Acts on incomplete information .

FACTORS:

Whether the client states before accepting the engagement contract that contact with the previous accountant must be requested in order to obtain relevant information .

SAFEGUARDS:

Asking the current or previous account to provide any known information that the proposed accountant should be aware of before accepting the engagement .

Obtaining information through other sources such as inquiries of other parties or background investigations of senior management and governance of the client .

The proposed accountant shall treat information in confidence and give weight to any information provided by the existing accountant .

ADDITIONAL

Confidentiality should be respected during changes in appointment .

The new accountant needs the client's permission to initiate discussions with the previous auditor .

The old accountant must ensure the client's permission is obtained and also whether the legal and ethical requirements are met .

If the client refuses permission , the new auditor should decline the position , unless there are exceptional circumstances .

Other means of enquiry include : Third parties and performing background checks .

If it is a recurring client engagement - must continuously review whether to continue with the engagement .

If the work of an expert is used :

-Determine whether the use is warranted .

-The skills , resources and experience of the expert .

-Their ethical standards and reputation .

Second Opinions

THREAT:

A self - interest threat to the compliance with the principle of professional competence and due care can be created if the second opinion is based on inadequate information .

FACTORS:

The circumstances of the request and all the other available facts and assumptions relevant to the expression of a professional judgement .

SAFEGUARDS:

With permission from the client , obtaining information from the existing or predecessor accountant .

Describing the limitations surrounding any opinion in communications with the client .

Providing the existing or predecessor accountant with a copy of the opinion .

Fees and other types of remuneration

THREAT:

The level of fees creates a self - interest threat to compliance with the principle of professional competence and due care if the fee quoted is so low that it might affect the ability to perform the engagement up to the expected standards .

FACTORS:

Whether the client is aware of the terms of the engagement and the basis on which the fees are charged .

Whether the level of the fee is set by an independent third party such as a regulatory body .

SAFEGUARDS:

Adjusting the level of fees or the scope of the engagement .

Having an appropriate reviewer to assess the work performed .

CONTINGENCY FEES

THREAT:

These are fees charged for certain non - assurance services which create a self - interest threat to objectivity .

FACTORS:

The nature of the engagement and the range of possible fee amounts .

The basis for determining the fee .

Disclosure to the intended users of the work performed .

Quality control policies Whether an independent third party is used to review the outcome and set the level of fee .

SAFEGUARDS:

Having an appropriate reviewer who is not involved in performing the non assurance service review .

Obtaining an advance written agreement with the client on the basis of remuneration .

REFERRAL FEE OR COMMISSION

EXPLANATION:

A fee is paid to another accountant for the purposes of obtaining new client work if the accountant requires specialist services not offered

A fee received for referring a continuing client to another accountant or expert if the existing accountant cannot provide the services required .

Commission received from a third party in connection with the sale of goods or services of the client .

NB ! An accountant shall not charge contingent fees for the preparation of or amendment to any tax returns as contingent fees for these services create a self - interest threat to objectivity that cannot be eliminated and safeguards are not capable of reducing the threat .

THREAT:

A self - interest threat to compliance with the principles of objectivity and professional competence and due care is created if the accountant : Pays or receives a referral fee or , Receives commission relating to a client .

FACTORS:

Whether the client is aware of the terms of the engagement and the basis on which the fees are charged .

Whether the level of the fee is set by an independent third party such as a regulatory body

SAFEGUARDS:

Obtaining an advanced agreement upfront and in writing from the client for commission agreements .

Disclosing to clients upfront and in writing any referral fees or commission agreements paid to or received from other accountants .

INDUCEMENTS WITH INTENT TO IMPROPERLY INFLUENCE BEHAVIOUR -

THREAT:

Self - interest or familiarity threat is created to integrity objectivity and professional behaviour when an auditor or their immediate family is offered gifts by a client .

An intimidation threat to objectivity is created when the client threatens to make these offers public .

FACTORS:

The intention behind the gift .

The nature frequency and value

The timing of when it is given

Whether it is customary or cultural or an ancillary part of the service

The degree of transparency

Whether it is limited to the recipient or available to the broader group

Apply the reasonable third - party test

SAFEGUARDS:

Informing senior management who are charged with governance of the client regarding the offer .

Amending or terminating the business relationship with the client .

INDUCEMENTS WITH NO INTENT TO IMPROPERLY INFLUENCE BEHAVIOUR

THREAT:

Self - interest or familiarity threat is created to integrity , objectivity and professional behaviour when an auditor or their immediate family is offered gifts by a client .

An intimidation threat to objectivity is created when the client threatens to make these offers public .

EXPLANATION

Self - interest : The auditor is offered hospitality from a client while providing services .

Familiarity : Regularly takes the client to sporting events .

Intimidation : Accepts hospitality - the nature of which could seem inappropriate if publicly disclosed ( RTP ) .

FACTORS:

The intention behind the gift .

The nature , frequency and value

The timing of when it is given

Whether it is customary or cultural or an ancillary part of the service

The degree of transparency

Whether it is limited to the recipient or available to the broader group

Apply the reasonable third - party test

SAFEGUARDS:

Declining the offer ( eliminates )

Transferring the service to another auditor whose connection with the client would not be deemed to be inappropriate ( eliminates ) .

Being transparent with senior management ( reduces ) .

Registering the inducement in a log monitored by senior management ( reduces ) .

PART 3 : Chartered Accountant in public practice

310 Conflict of interest

320 Professional appointments

321 Second Opinion

330 Fees

340 Inducements including Gifts and Hospitality

350 Custody of client assets

Conflict of interest

THREAT

Threat to objectivity may be created when a CA competes directly with a client or has a joint venture or similar arrangement with a major competitor of a client .

A threat to objectivity or confidentiality may also be created when a CA performs services for clients whose interests are in conflict or the clients are in dispute with each other in relation to the matter or transaction in question .

FACTORS

Before accepting a new client , engagement or business relationship the professional accountant shall : Take reasonable steps to identify conflict of interest .

Identify the nature of interests and relationships as well as the service and its implications for relevant parties .

The existence of separate practice areas for speciality functions within the firm which may act as a barrier for passing confidential information .

Policies and procedures to limit access to client files .

Confidentiality agreements signed by personnel and partners .

Separation of confidential information physically and electronically .

Specific and dedicated training and communication ..

DISCLOSURE AND DOCUMENTATION

Disclosure and consent may take different forms :

General disclosure to clients that a professional accountant cannot provide professional services exclusively for one client .

Specific disclosure to affected clients of the conflict of interest and how threats will be addressed - enabling the client to make an informed decision .

Implied consent by the client's conduct after a detailed presentation of the circumstances has been made to the client and if they do not raise an objection to the existence of the conflict .

SAFEGUARDS

Having separate engagement teams who are provided with clear policies and procedures for maintaining confidentiality .

Having an appropriate reviewer who is not involved in providin