CPC Class Slides
CPC Class Slides
Slides
Lecture 2:
⚫ SAICA Code of Professional conduct:
⚫ Chartered Accountants in Public Practice
⚫ Chartered Accountants in Business
⚫ IRBA Code of Professional Conduct
4
Display an understanding of what the CPC is and who
needs to adhere to this code
Understand what the 5 fundamental principles described
in the CPC and be able to identify them in a scenario.
Understand the specific threats that a CA can encounter
Understand which fundamental principle can be affected
by each threat.
For each specific case discussed, know what is allowed
and not allowed in terms of the CPC and how to make
recommendations.
Ensure that the above can be identified in a scenario and
properly discussed.
5
GOOD
SELF OTHER
7
Macro/Economic
Meso/Institutional
Framework within
Relationships
which economic
between
exchange takes
organizations
place
Micro/Intra-organizational
Relationships between
individuals
8
(Chartered Accountants)CA(SA)’s and (Registered Auditors) RA’s
◦ Operate in business environment (understand business ethics)
◦ Professional status in corporate environment
◦ Professional obligations
◦ Professional and ethical responsibilities
9
IFAC Code
SAICA Code of By-laws of SAICA
Professional
Conduct
Ethical
environment
IFAC Code
Code of Rules regarding
Professional improper conduct
Conduct - IRBA for RA’s - IRBA
10
11
Deals with professional attitudes of members
and associates of institute
The board identified skills and integrity as the
pre-eminent professional attributes.
Divided into three parts
Part A – General Application of the Code
Bart B – Chartered Accountant in Public
practice
Part C – Chartered Accountant in Bussiness
1
2
Part A
General Application
of the Code
13
Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behavior
https://www.youtube.com/watch?v=JJTp
AJhYixI
1
4
Not be associated with reports, returns,
communications that:
15
Not compromise professional or business
judgement because of:
16
Maintain professional knowledge and skill
17
18
Not use or disclose info, unless
19
Publicity, advertising and solicitation
Honest and truthful and not:
20
Multiple firms
Chartered accountant can be member of more than one firm
Can be member of auditing firm and a non-audit firm
Ensure that where member of firm where not all RA’s/CA’s (non-audit firm), do NOT
contravene S41(2) of APA
Recruiting
o May NOT offer employment to current employee of another CA without letter to other CA
o MAY Engage employees who respond to ad / act on own initiative; but first inform other
CA ✓
2
1
Signing conventions
2
2
Responsibilities to colleagues
Promote co-operation and good relations between CA’s
Assist fellow CA’s in complying with this Code
Co-operate with appropriate disciplinary authorities in applying code
Not seek to displace another CA in client relationship by negative means
Not act in any way that reflects negatively on fellow CA’s
Extend same professional considerations to non-member where professional relationship;
same procedures for change in appointment
2
3
Identify circumstances and
relationships that create
threats
Evaluate significance of
threats
Familiarity
threat
Self-review threat
Advocacy threat
25
Self-interest threat:
Financial interest in assurance client
Self-review threat:
Previous judgment of chartered accountant needs to be re-
evaluated by that chartered accountant
Advocacy threat:
Chartered accountant promotes position or opinion such
that subsequent objectivity may be compromised
26
Familiarity threat:
Close relationships – become too sympathetic to
interests of others
Intimidation threat:
Chartered accountant may be deterred from acting
objectively by threats – actual/perceived
27
1. VBhas been the lead audit partner on
the audit of Cyber Ltd, a listed company,
for the past 5 years.
Safeguards
Created by
legislation Created by
regulation
29
Consider the following:
relevant
facts
ethical
alternative
issues
courses of
involved
action
individually
or together
established fundamenta
internal l principles
procedures related to
matter
30
Determine the following:
consult if matter
remains
appropriate weigh
unresolved
course of action consequences
(BOD, audit
committee)
31
Significant conflict not resolved
◦ obtain professional advice (professional body / legal advisor)
◦ without breaching confidentiality
Ethical conflict still not resolved after exhausting all
relevant possibilities
◦ refuse to be associated with matter creating conflict
◦ withdraw from engagement team / assignment
◦ resign from engagement / firm / employing organisation
32
LESSON 2
Part B
Chartered
Accountants in
Public Practice
35
Identify the ethical issue
Implement safeguards
3
6
Self-interest Intimidation
threat threat
Threats to independence
Familiarity
threat
Self-review threat
Advocacy threat
37
Self-interest threat:
◦ Direct financial interest
◦ Material indirect interest
◦ Dependence on total fees
◦ Close business relationship
◦ Concern over losing client
◦ Potential employment by client
◦ Contingent fees for assurance engagement
◦ Loan/guarantee to/from client or directors/ officers of client
38
Self-review threat:
◦ Having prepared the original data used to generate records for
the subject matter of the engagement.
◦ Being involved with financial systems design and implementation
and then reporting on operation
◦ Member of team previously director/employed by client in a
position to exert a direct and significant influence over the subject
matter.
◦ Performing service that directly affects subject matter of
assurance engagement
◦ Discovering of a significant error during re-evaluation of work
done
39
Advocacy threat:
❑ Acting for client in litigation/resolving dispute with 3rd party
40
Familiarity threat:
❑ Member of team – close family with director of client
❑ Member of team – close family with employee with influence
on subject matter of engagement
❑ Former partner of firm being director/employee with
influence over subject matter of the audit
❑ Long association of senior team member with client
❑ Acceptance of significant gifts/ hospitality
41
Intimidation threat:
❑ Threat of replacement/ dismissal
❑ Threat of litigation
❑ Threat to reduce extent of work to reduce fees
42
Created by the Engagement
profession, Firm-wide
specific
legislation and
regulation
Safeguards
43
Within profession, legislation,
Within the work environment
regulation
Corporate governance
Significance of threat
regulations
and safeguards
applied
Professional standards
Nature of engagement
Structure of the firm
Disciplinary processes
45
Threats to professional behavior Appropriate safeguards
and integrity
▪ Client involvement in illegal activity ▪Obtain knowledge and understanding of the
▪ Dishonesty client, owners, managers and those
▪ Questionable financial reporting practices responsible for governance and bus activities
▪Securing client commitment to improve
corporate governance practices or internal
controls
4
6
Self interest threats to Appropriate safeguards
professional competence and due
care
▪ Agreeing to provide services for which ▪Obtain understanding of nature of client’s
Chartered Accountant in public practice is business, complexity of operations,
not competent purpose, specific nature and scope of work
▪Acquiring knowledge of industry/subject
matters
▪Assigning sufficient competent staff
▪Using experts
▪Agreeing on realistic time frames
▪Complying with quality control policies and
procedures
4
7
Determine if there’s Communication with Request permission (in writing)
any reason, existing accountant to communicate with the existing
professional or other, depends on: auditor. (NB! Existing auditort
not to accept •Client’s permission should not volunteer info without
engagement •Legal or ethical permission)
requirements
48
Threats
Threat to objectivity
◦ competes directly with client; or
◦ has material business relationship with direct competitor of client
Threat to confidentiality and objectivity
◦ performs services for clients whose interest are in conflict; or
◦ clients are in dispute with one another
4
9
Safeguards
Threats are insignificant
◦ notify client of firm’s business interest or activities = conflict, and
obtain consent to act
◦ notify all known relevant parties that you act for 2 or more parties
in conflict, and obtain consent
◦ notify client that you do not act exclusively for any one client in
provision of services, and obtain consent
5
0
Threat are significant
◦ use separate engagement teams
◦ procedures to prevent access to information
◦ guidelines to teams w.r.t issues of security and confidentiality
◦ confidentiality agreements
◦ regular review of application of safeguards by senior management
Should not accept or should resign from one or more
conflicting engagements if threats cannot be reduced to
acceptable level
5
1
Threats to compliance with the fundamental principles
arise due to:
◦ provision of second opinion on application of accounting, auditing,
reporting or other standard or principles to specific trans or
circumstances
◦ by or on behalf of company or entity not an existing client
Safeguards
◦ seeking client permission to contact existing accountant
◦ describe limitations surrounding any opinion in communications
with client, and
◦ providing existing accountant with copy of opinion
5
2
Lowballing
Definition
◦ Lower tariff than previously charged or other auditor
◦ Still comply with technical standards
Self-interest threat to professional competence and
due care created if:
◦ fee that is quoted is so low that it may be difficult to perform
engagement in accordance with applicable technical standards
Safeguards
◦ making client aware of terms of engagement, i.e. basis on which
fees are charged and services covered
◦ assigning appropriate time and qualified staff
53
Contingency fees
Generally used for certain types of non-assurance engagement
54
Contingency fees
Safeguards
◦ an advance written agreement with the client w.r.t basis of
remuneration
◦ disclosure to intended users of work performed and basis of
remuneration
◦ quality control policies and procedures
◦ review by an objective 3rd party of work performed
55
Commission / referral fees
Examples
◦ pay referral fee to obtain client
◦ receive from 3rd party for work referred (e.g software
vendor)
◦ receive referral fee for referring continuing client to
another professional accountant ✓
Self-interest threat to objectivity and professional
competence and due care
56
Commission / referral fees
Safeguards
◦ disclosing to the client any arrangements to pay a referral fee
◦ disclosing to the client any arrangements to receive a referral fee
◦ obtaining in advance agreement from client for commission
arrangements in connection with 3rd parties
57
Self-interest threat to compliance with professional
behaviour if:
◦ Services, achievements or products marketed in a way
inconsistent with principles
◦ Should be honest and truthful and should not:
make exaggerated claims for services offers, qualifications possessed
or experience gained, or
make disparaging references to unsubstantiated comparisons to the
work of another
Where doubt exist as to the appropriateness of proposed form
of advertising, consult Regulatory Board or SAICA
58
Self-interest threat to objectivity if a gift from a client is
accepted
Intimidation threat to objectivity may result from possibility
of such offers being made public
Significance of threat depend on:
◦ Nature
◦ Value
◦ Intent behind offer
Offers made in normal course of business will not pose a
significant threat,
◦ for e.g. ???
59
Should not assume custody of client monies or assets,
unless:
◦ permitted by law
◦ in compliance with any additional legal duties imposed
Self-interest threat to professional behaviour
Self-interest threat to objectivity
Safeguards
◦ separately from personal or firm assets
◦ use such assets only for the purpose for which they are intended
◦ at all times, be ready to account for those assets, any income,
dividends or gains generated to entitled persons
◦ comply with all relevant laws and regulations
60
Entrusted with client monies or property other than monies
belonging to others during course of providing professional
services:
◦ Client monies:
Separate bank account
Appropriately designate such accounts
Deposit client monies without delay to the credit of such client
account indicated
◦ Property other than money (trust property)
Maintain records as reasonably expected to ensure property readily
ID
If in the form of documents of title to money/ documents of title to
convert into money – safeguard against unauthorized use
61
When you are not independent in mind or appearance or
you have a direct relationship with someone at
management level, consider the following safeguards
Safeguards
◦ withdrawing from the engagement team
◦ supervisory procedures
◦ Terminating business/ financial relationship giving rise to threat
◦ Discuss issue with higher levels of management within firm
◦ Discuss issue with those charged with governance at client
62
Independence of mind (own opinion)
◦ To provide opinion
◦ Free of influences
◦ Professional judgment with integrity, objectivity and skepticism
Independence in appearance (other’s opinion)
◦ Avoid fact & circumstances
◦ Which would make reasonable/informed third party believe
◦ Integrity, objectivity and professional skepticism had been
compromised
63
PART C
CHARTERED ACCOUNTANTS IN
BUSINESS
64
Self-interest Intimidation
threat threat
Threats to fundamental
principles
Familiarity
threat
Self-review threat
65
Self-interest threats
◦ Incentive compensation schemes
◦ Inappropriate personal use of corporate assets
◦ Concern over employment security
◦ Financial interests, loans or guarantees
◦ Commercial pressure from outside the employing organisation
Self-review threats
◦ Decisions or data reviewed by same CA responsible for making decisions
or preparing data
66
Financial interest
◦ Self or immediate/close family members
Safeguards
◦ Internal/external audit procedures
◦ Up-to-date education on ethical matters and legal restrictions
regarding insider trading
◦ Policies and procedures for committee of independent manager –
level of remuneration
◦ Disclose relevant interests, plans to trade shares to those charge
with governance
◦ Consultation with relevant bodies
67
Inducements
◦ When an inducement is offered inappropriately to influence
professional judgment of third party.
◦ Not permitted, whether received by a CA or paid by a CA.
◦ Significance of threat – nature
Actions to consider
◦ Inform higher levels immediately
◦ Inform third parties of offer – Professional body/employer of
individual who made offer
◦ Advise immediate or close family members of relevant threats and
safeguards where potentially in positions that might result in offers
of inducements
68
Familiarity threats
◦ In position to influence financial/ non-financial reporting or
business decision and immediate/ close family member in
position to benefit from such
◦ Long association with business contacts – influence business
decisions
◦ Acceptance of a gift unless value is clearly insignificant.
Intimidation threats
◦ Threats of dismissal/ replacement of self or immediate/close
family member due to dispute over application of accounting
principles or financial reporting
◦ Dominant personality trying to influence decision making
6
9
Created by the
profession,
legislation and
regulation
Safeguards
70
Safeguards within the work environment
systems of corporate oversight or other oversight structure
organisation’s ethics and conduct programmes
recruitment procedures
strong internal controls
appropriate disciplinary processes
leadership that stresses importance of ethical behaviour and expectation of
ethical employees
policies and procedures to implement and monitor the quality of employee
performance
timely communication of policies and procedures, changes thereto and
training and education
policies and procedures to empower and encourage employees to
communicate any etherical issues
consultation with another appropriate chartered accountant
71
Employer’s ethical objectives vs. compliance with
fundamental principles
Exert pressure on employee to:
◦ Act contrary to laws/regulation
◦ Act contrary to technical or professional standards
◦ Facilitate unethical or illegal earnings management strategies
◦ Lie to / intentionally mislead auditors or regulator
◦ Issue false/misleading statements, i.e. tax, legal, afs
72
Safeguards
◦ Obtaining advice where appropriate from:
Within employing organisation
An independent professional advisor
Relevant professional body
◦ Existence of formal dispute resolution process with organisation
◦ Seeking legal advice
73
Preparation and reporting of information
◦ Fairly, honestly and in accordance with relevant professional standards
Acting with sufficient expertise
◦ Undertake significant tasks for which has, or can obtain sufficient specific
training or experience
Threats to prof competence& Due care
◦ Insufficient time for properly performing or completing duties
◦ Incomplete, restricted or otherwise inadequate info to perform duties
◦ Insufficient experience, training/education
◦ Inadequate resources for proper performance of duties
Safeguards
◦ Obtain additional advice/training
◦ Ensure adequate time is available to perform duties
◦ Obtain assistance from someone with relevant expertise
74
Essentially same as SAICA CPC as both
drawn from IFAC Code.
7
5