Professional Ethics

and Rules of
Professional Conduct
Compiled By:
Md. Mahedi Hasan FCA CPFA
Adjunct Faculty
Department of Accounting and Information
Systems
Bangladesh University of Professionals (BUP)
 Ethics!
Ethics refers to the principles and values
that guide individuals in determining
what is right and wrong, good and bad,
in their behavior and decision-making.
It is a branch of philosophy that deals
with questions about morality and how
people ought to act.
 Key Aspects of Ethics

Ethical Theories: There are

various ethical theories that
provide frameworks for
understanding and analyzing
moral issues, such as: Application: Ethics is applied
•Utilitarianism: Focuses on the in various fields, such as
Norms and Values: Ethics is
Moral Principles: Ethics outcomes of actions, where the business, medicine, law, and Personal and Social
concerned with norms and morally right action is the one that
involves the study of moral engineering, to guide Responsibility: Ethics also
values, such as honesty, produces the greatest good for the
principles that govern a professionals in making ethical involves the responsibility of
integrity, fairness, and justice. greatest number of people.
person's or group's behavior. decisions in their work. For individuals to act in a way that
These values guide people in
These principles help •Deontology: Focuses on the example, business ethics is beneficial to society and
making ethical decisions and
individuals make decisions adherence to rules or duties. involves issues like corporate respects the rights and dignity
acting in a morally responsible
about what is right and wrong. According to this theory, some governance, insider trading, of others.
way. actions are morally obligatory, and corporate social
regardless of the consequences.
responsibility.
•Virtue Ethics: Focuses on the
character of the individual and the
cultivation of virtuous traits, such as
courage, honesty, and compassion.
 Criteria Principle-Based Rule-Based
Focus on Principles This approach emphasizes broad, general This approach provides specific, detailed rules
principles that guide ethical behavior. Principles or guidelines that dictate what is acceptable
are overarching guidelines, such as honesty, or unacceptable behavior. These rules are
fairness, respect, or integrity. often clear and unambiguous.

Flexibility Principle-based codes allow for flexibility in Rule-based codes are typically more rigid,
decision-making. Individuals or organizations with less room for interpretation. Individuals

Difference between are expected to interpret and apply these

principles to a wide range of situations, taking
are expected to follow the rules precisely,
regardless of context.
into account context and specific
principle and rule circumstances.

based ethical code Example The ethical principle "Do no harm" can be A rule such as "Do not accept gifts from
applied in various situations, requiring clients" is straightforward and must be
individuals to consider the potential harm of followed exactly as written
their actions and make decisions accordingly.

In Short emphasize broad ethical values and allow for provide specific, detailed instructions for
judgment in their application. behavior, aiming for consistency and clarity
but potentially lacking flexibility.
 Key Features of the IESBA Code of Ethics

1 2 3 4 5 6

Principles-Based Fundamental Principles - Conceptual Framework - Independence Ethical Safeguards - The International
Approach -The IESBA The IESBA Code is built The IESBA Code uses a Requirements - The code also includes Applicability - The IESBA
Code is primarily around five fundamental conceptual framework IESBA Code includes guidance on Code is designed to be
principles-based, principles approach to help specific provisions on implementing safeguards applicable globally,
meaning it focuses on accountants identify, independence for to reduce or eliminate making it a key standard
overarching ethical evaluate, and address auditors and other threats to ethical for accountants working
principles that threats to compliance professional accountants behavior. These across different
accountants are expected with the fundamental in public practice. It sets safeguards might involve jurisdictions. National
to adhere to in various principles. This out the circumstances actions taken by the accountancy bodies often
situations. It encourages framework requires under which individual accountant, adopt or adapt the IESBA
accountants to apply accountants to use their independence is required the employing Code for local use.
professional judgment in judgment in determining and how it should be organization, or the
interpreting and applying whether their actions maintained, particularly profession as a whole.
these principles. meet the ethical when providing audit or
requirements of the assurance services.
code.
 IESBA Code of Ethics
Integrity: Accountants should be straightforward and honest in all professional and business relationships.

Objectivity: Accountants should not allow bias, conflicts of interest, or undue influence to override professional or
business judgments.

Professional Competence and Due Care: Accountants must maintain professional knowledge and skill at the
required level to ensure that clients or employers receive competent professional services.

Confidentiality: Accountants should respect the confidentiality of information acquired as a result of professional
and business relationships and should not disclose such information without proper and specific authority.

Professional Behavior: Accountants should comply with relevant laws and regulations and avoid any action that
discredits the profession.
 Common Types of Threats
Threats Description Example
Self Interest Occurs when an accountant has a financial or other interest • A partner in an audit firm has a significant financial interest in the
that could influence their judgment or behavior. client company.
• An accountant’s compensation depends on achieving certain financial
targets that could lead to biased decision-making.
Self-Review Arises when an accountant has to review or evaluate their • An auditor auditing financial statements that they prepared or were
own work or the work done by their firm. involved in preparing.
• Providing assurance services on a report where the same firm was
involved in the compilation.
Advocacy Occurs when an accountant promotes a client’s or • Representing a client in negotiations or disputes.
employer’s position to the point that their objectivity is • Acting as an advocate for a client’s tax position in a legal dispute.
compromised.
Familiarity Develops when an accountant becomes too sympathetic to • An auditor who has a long-standing relationship with a client’s
the interests of others due to a close relationship, or when management or board.
they are deterred from acting objectively by threats or fear • Feeling pressured by a dominant client or senior executive to overlook
of negative consequences. issues or make biased judgments.
Intimidation Occurs when an accountant may be deterred from acting • An accountant threatened with dismissal if they do not overlook
objectively due to actual or perceived pressures, including questionable financial practices.
threats from a client, employer, or other stakeholder. • A client threatening to change firms if the accountant does not agree
with their aggressive accounting approach.
 Financial Interests: If an auditor or accountant has a financial
interest in a client's business (e.g., owning shares), they might be
biased in their evaluation or reporting.
Close Relationships: Personal relationships with individuals within
the client organization, such as family members or close friends,
can lead to biased decision-making.
Loans and Guarantees: If a professional has borrowed money
Common Situations from a client or has provided a loan guarantee, they might be
influenced to act in ways that protect their financial interests.
Leading to Self-
Contingent Fees: When payment for a service is dependent on
Interest Threats the outcome (e.g., a bonus if certain financial targets are met),
the professional might be tempted to manipulate the results.
Employment Negotiations: If an accountant or auditor is
negotiating for a job with a client while still performing services
for them, it could lead to compromised objectivity.
Undue Pressure: When a professional is under significant
pressure to meet financial or performance targets, they might act
in their self-interest rather than adhering to ethical standards.
 Preparation of Financial Statements: If an auditor is involved in
preparing a client's financial statements and then is also responsible
for auditing those statements, they may be reluctant to identify or
report errors in their own work.

Internal Auditing and External Auditing: When a firm provides both

internal and external audit services to the same client, there’s a risk
that the external audit team may be reviewing and relying on the
work performed by their own colleagues.

Common Situations Consulting Services: If an accounting firm provides consulting services

Leading to Self- that involve implementing financial systems or advising on accounting
policies and then audits the client, they may need to audit the
effectiveness of their own recommendations or work.
Review Threats
Tax Services: If a professional provides tax advisory services and also
audits the same client’s tax returns, there’s a risk that they might
overlook issues or errors in the advice provided.

Valuation Services: When a firm provides valuation services and then

uses those valuations as part of the audit process, the objectivity of
the audit can be compromised.
 • Legal Representation: If an accountant, auditor, or other
professional acts as an advocate for a client in legal or regulatory
proceedings, they may become so invested in the client's position
that their objectivity is impaired.
• Promoting Client's Shares: If an accountant or auditor is involved in
marketing or promoting the client's shares or other securities, their
impartiality in auditing or reporting on the client's financial
statements could be compromised.
• Lobbying Activities: When a professional engages in lobbying
activities on behalf of a client, particularly if the lobbying relates to
matters that they will later need to audit or report on, this can
create a conflict of interest.
Common Situations • Negotiation Support: Providing negotiation support or advice in a
way that aligns the professional too closely with the client's
Leading to Advocacy objectives, especially in contentious or high-stakes situations, can
lead to advocacy threats.
• Endorsement of Client Products or Services: If a professional
endorses or promotes a client's products or services, their ability to
remain impartial when auditing or evaluating the client’s business
operations might be compromised.
 Long-Term Relationships: If a professional has had a long-standing relationship
Common Situations Leading with a client, they might become too comfortable with the client’s practices,
to Familiarity Threats leading to a lack of critical scrutiny.

Family and Close Relationships: When a professional has close personal

relationships (e.g., family members, friends) within the client organization, this
can lead to biased decision-making or an unwillingness to challenge the client.

Repeated Assignments: If the same individual or team performs the same

service for a client over many years (e.g., auditing), they might lose their
objectivity and independence over time.

Employment Offers: If a professional is considering or negotiating employment

with a client while still engaged in a professional role, they may be influenced by
their desire for future employment.

Mutual Interests: If a professional shares mutual interests or social ties with a

client (e.g., being part of the same social or business circles), it might affect
their impartiality.
 Pressure from Clients or Employers: A client or employer might
pressure a professional to overlook errors, approve misleading
financial statements, or perform actions that are not in accordance
with professional standards.

Fear of Losing Business: If a client is a significant source of revenue

for a professional or their firm, there may be a fear of losing the client
if they do not comply with the client's demands, leading to
compromised judgment.
Common
Situations Leading Bullying or Harassment: Direct threats, bullying, or harassment by a
client, employer, or colleague can create an environment where a
to Intimidation professional feels coerced into acting unethically.

Threats
Threats to Job Security: If a professional is threatened with dismissal
or demotion if they do not conform to certain demands, this can
create an intimidation threat.

Influence from Senior Management: In cases where senior

management exerts undue influence on auditors, accountants, or
other professionals to achieve a desired outcome, there is a risk that
the professional’s objectivity will be compromised.
Mitigating or Addressing These Threats
Identify Threats: Professional accountants should be vigilant in recognizing situations where these threats
may arise.

Evaluate the Significance of Threats: Once identified, accountants should assess how serious the threat is
in relation to their ability to comply with the fundamental principles.

Professional Safeguards: Such as peer reviews, external quality control

reviews, or consulting with an ethics committee.
Apply Safeguards: If the threat is significant, Organizational Safeguards: Including policies and procedures that promote
safeguards should be applied to eliminate or reduce ethical behavior, such as rotating senior personnel or involving independent
third parties in decision-making.
it to an acceptable level. Safeguards can include: Personal Safeguards: Including refusing certain engagements, stepping down
from specific duties, or severing financial ties with the client.

Decline or Discontinue Engagement: If a threat cannot be reduced to an acceptable level through

safeguards, the accountant may need to decline or discontinue the engagement or specific service.