Accountancy conduct and ethics code change is coming

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Changes to IFAC’s code of conduct and ethics have much to recommend them. AAT‘s Head of Conduct and Compliance, Tania Hayes, outlines the AAT response to the changes

Ethical practice is grounded in ideas of right and wrong. Yet the application of these values varies. This year could see significant changes to AAT’s Code of Professional Ethics, because of changes made by the International Ethics Standards Board of IFAC (IESBA) to its Code of Ethics for Professional Accountants (CEPA), on which the AAT code is based. Yet not everything is appropriate to us. So what were the IESBA changes? And how did AAT respond?

Define conflict of interests

The IESBA wants to develop guidance on how professional accountants manage conflicts of interest. The CEPA – as currently drafted – requires professional accountants to manage conflicts using the conceptual framework.

This means identifying threats to compliance with the fundamental principles of professional ethics – and, in particular in this instance, objectivity – and then using safeguards to either reduce the threat to an acceptable level, or terminate it. The IESBA proposes to define a conflict of interest, which was not previously done.

On behalf of members, AAT welcomed the additional guidance to be provided to support accountants in understanding what a conflict of interest might look like. We suggested that the IESBA ensures consistent terminology is applied throughout the clauses, and that professional accountants are warned that conflicts may arise during the course of engagements, so they can always be alert to the possibility, and take proactive steps to manage the problem.

Abuse fears over accidental breaches rules

The existing code provides a facility for ‘inadvertent’ breaches to be remedied by the use of safeguards after the breaches have been identified. The IESBA suggested that such provisions might be subject to abuse. It considered that merely having those provisions meant practitioners’ first test was determine whether a breach was indeed inadvertent – which undermined the significance of any breach (which may be serious even if it was inadvertent).

AAT urged the IESBA to tackle the problem in a proportionate manner, recognising that a breach is only inadvertent until it is recognised, at which point all accountants have a professional duty to remedy it. As context, it’s worth noting that using ignorance as a defence is rare.

To plead an inadvertent breach risks calling into question a member’s professional competence, so use of this provision is limited because the impact on a member may be worse than accepting responsibility for the breach itself.

Exposure of a suspected illegal act

The IESBA proposed to create new guidance for accountants in which the duty of confidentiality could be overridden when encountering a suspected illegal act in the course of the accountant’s daily work.

This would include a suspicion of fraud. Of particular note was the proposal that a professional accountant should take steps to confirm or dispel that suspicion. AAT took a cautious approach in responding to this proposal. This was because we recognised that – for members in practice in particular – the proposal risked duplicating or diluting members’ obligations under the UK’s Proceeds of Crime Act 2002.

The Act already requires accountants working in the regulated sector to report suspicious activity to the Serious Organised Crime Agency. But it expressly forbids the accountant from taking steps to confirm or dispel their suspicion – this is to avoid inadvertently tipping off a perpetrator that their crime may have been detected. This more stealthy approach minimises the risk that the criminal might attempt to cover their tracks by moving the proceeds of their crime elsewhere.

The changes consulted on have yet to be enshrined in a revised CEPA. We will keep you posted on progress. If, in the meantime, you would like to find out more about the work of the IESBA, or about how AAT responds to consultations on behalf of members, visit the AAT website or the dedicated ethics microsite, where you can see the Code of Professional Ethics brought to life.

Tania Hayes is AAT's Head of Professional Standards & Strategy.

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