Chapter 9: ICAEW Code of Ethics - Threats and safeguards

What are the five threats to compliance with the ICAEW fundamental principles?

1. Self-interest — a financial or other interest inappropriately influences judgement.

2. Self-review — failing to properly evaluate your own previous work.

3. Advocacy — promoting a client's position to the point objectivity is compromised.

4. Familiarity — being too sympathetic due to a long or close relationship.

5. Intimidation — being deterred from acting objectively due to pressure, e.g. demands to alter findings, threats of dismissal, or promotion withheld for disagreeing with an accounting treatment.

What are the three steps of the conceptual framework for dealing with threats?

Identify the threat, evaluate it using the reasonable and informed third party test, then address it by applying safeguards, removing the circumstance, or declining/ending the work.

What is the reasonable and informed third party test?

Would a reasonable, informed third party — not necessarily an accountant, but with relevant knowledge — conclude that the accountant complied with the fundamental principles?

What are the three possible outcomes when evaluating a threat?

Already at an acceptable level — no action needed. Can be reduced — apply safeguards or remove the circumstance. Cannot be reduced — decline or resign from the engagement.

What safeguards can address a self-review threat?

Using an independent reviewer who was not involved in the original work; segregating responsibilities so different individuals perform different tasks.

How should an accountant respond to gifts and hospitality?

Consider value and influence of the gift. Disclose, keep it low value, use independent review if needed, and apply professional judgement—gifts aren’t automatically acceptable.

Give two examples of self-interest threats for accountants in business

Participating in incentive compensation arrangements; holding a financial interest or loan from the employer; personal use of corporate assets; receiving gifts from a supplier.

Give two examples of familiarity threats for accountants in practice

A long-standing relationship with an audit client; having family members employed by the client.

What should an accountant do if pressured by a superior to breach the ICAEW Code?

Refuse, document the pressure including facts and communications, escalate to those charged with governance, and seek advice from mentors, ethics officers or legal advisors. Resign if the threat cannot be reduced.

What is whistleblowing and what does PIDA protect?

Whistleblowing is reporting wrongdoing in the public interest (internally or externally). PIDA 1998 protects whistleblowers from dismissal or legal action if they act in good faith, not for personal gain.

Consequences of whistleblowing

Positive: exposes wrongdoing, possible praise. Negative: harassment, dismissal, loss of promotion, stress, reputational damage; protection not always full.

Business vs practice threats

Business: internal pressure (bosses, incentives, family influence). Practice: client pressure (fees, long-term clients, threats to switch auditor).

Sources of pressure to breach ICAEW Code

Internal (culture/colleagues), external (clients/suppliers/lenders), and targets/pressure to meet performance goals