Faculty of Management Sciences

Chapter 2: Code of Professional

Conduct (CPC)
Unit 2(1) 2022
 Lecture attendance
 Module and Chapter three of Textbook

 Slides

 Tutorial attendance/attempting practice

questions
 Application of theory by attempting the
practice question and the tutorial.
 Lecture 1:
 Business ethics vs. professional ethics
 SAICA Code of Professional conduct:
◦ General application of the code
◦ Chartered Accountants in Public Practice

Lecture 2:
⚫ SAICA Code of Professional conduct:
⚫ Chartered Accountants in Public Practice
⚫ Chartered Accountants in Business
⚫ IRBA Code of Professional Conduct

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 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.

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 GOOD

SELF OTHER

Definition: Ethics is about what is good/right in human

interaction. Revolves around 3 central concepts: self, good
and other. Ethical behavior is when one considers not only
what is good for self, but also what is good for others.
  Business ethics: moral principles that govern a business’
◦ Dimensions of economic activity
 Macro – wider policy framework
 Meso - relationship between bus. & society
 Micro - individuals in the organisation
◦ Good for Self & Other
◦ Ethical codes in business
◦ Professional codes for professions

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Macro/Economic
Meso/Institutional
Framework within
Relationships
which economic
between
exchange takes
organizations
place

Micro/Intra-organizational
Relationships between
individuals

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 (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

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 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

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 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

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 Part A
General Application
of the Code

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 Integrity
 Objectivity
 Professional competence and due care
 Confidentiality
 Professional behavior

 https://www.youtube.com/watch?v=JJTp
AJhYixI

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Not be associated with reports, returns,
communications that:

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 Not compromise professional or business
judgement because of:

 Adversely influence capacity to act

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 Maintain professional knowledge and skill

 Act diligently in accordance with applicable

technical and professional standards

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  Not use or disclose info, unless

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 Publicity, advertising and solicitation
 Honest and truthful and not:

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 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 ✓

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 Signing conventions

Allowed if emergency of sufficient gravity; but MUST:

When signing, reflect the following:

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 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

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 Identify circumstances and
relationships that create
threats

Evaluate significance of
threats

If no safeguards are available Safeguards to eliminate/

– eliminate activity/interest or reduce threats to
refuse to accept engagement
acceptable level
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 Self-interest Intimidation
threat threat

Threats to compliance with

fundamental principles

Familiarity
threat
Self-review threat
Advocacy threat

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 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

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 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

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1. VBhas been the lead audit partner on
the audit of Cyber Ltd, a listed company,
for the past 5 years.

2. The audit firm A&R are asked to provide

internal audit services to Clarkson Ltd,
one of its audit clients.

3. FlyfastLtd, a travel agency, offers its

audit partner and audit manager free
airline tickets to watch the Tour de
France. The tickets are part of a Flyfast
sales promotion.
 Created by the Created by
accounting employing
profession organisation/
working
environment

Safeguards

Created by
legislation Created by
regulation
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  Consider the following:

relevant
facts
ethical
alternative
issues
courses of
involved
action
individually
or together

established fundamenta
internal l principles
procedures related to
matter
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 Determine the following:

consult if matter
remains
appropriate weigh
unresolved
course of action consequences
(BOD, audit
committee)

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  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

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LESSON 2
 Part B
Chartered
Accountants in
Public Practice

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Identify the ethical issue

Identify the threats

Identify the applicable fundamental principles

Implement safeguards

Safeguards do not reduce threat to acceptable level,

take action

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 Self-interest Intimidation
threat threat

Threats to independence

Familiarity
threat
Self-review threat
Advocacy threat

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 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

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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
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 Advocacy threat:
❑ Acting for client in litigation/resolving dispute with 3rd party

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 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

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 Intimidation threat:
❑ Threat of replacement/ dismissal
❑ Threat of litigation
❑ Threat to reduce extent of work to reduce fees

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 Created by the Engagement
profession, Firm-wide
specific
legislation and
regulation

Safeguards

Within the work

environment

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 Within profession, legislation,
Within the work environment
regulation

Education, training and

Exercise of judgment
experience to enter profession

Continuing professional Reasonable and

development informed 3rd party test

Corporate governance
Significance of threat
regulations
and safeguards
applied
Professional standards
Nature of engagement
Structure of the firm
Disciplinary processes

External review of firms quality

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control
 - Before accepting client, specific
engagement or replacing chartered
accountant in PP a CA should
determine:
- Any threats
- Safeguards

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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

- Chartered accountant in public practice should decline to enter in

relationship if threats cannot be reduced to an acceptable level.
- Acceptance decisions should be reviewed periodically (recurring
engagements)

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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
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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

Changes in a professional Discuss the client’s affairs fully

and freely with the existing
appointment auditor
If communication with existing auditor
is not possible, obtain info about any
possible threats by other means:
•Inquiries of 3rd parties
•Background investigations on senior
management or those charged with Ask the existing auditor, preferably in
governance writing, to provide information on any
professional reasons which should be
known before accepting the
appointment within a reasonable time

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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

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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

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 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

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 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
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 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

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 Contingency fees
 Generally used for certain types of non-assurance engagement

 Self-interest threat to objectivity depends on:

◦ the nature of the engagement
◦ the range of possible fee amounts
◦ the basis for determining the fee
◦ whether outcome or result will be reviewed by an independent
3rd party

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 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

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 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

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 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

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  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

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  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. ???

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  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

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 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

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  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

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  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

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 PART C

CHARTERED ACCOUNTANTS IN
BUSINESS

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 Self-interest Intimidation
threat threat

Threats to fundamental
principles

Familiarity
threat
Self-review threat

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  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

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  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

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 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

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 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
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 Created by the
profession,
legislation and
regulation

Safeguards

Within the work

environment

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 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

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  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

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  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

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  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
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 Essentially same as SAICA CPC as both
drawn from IFAC Code.

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