Key Takeaways
- The International Code of Ethics for Professional Accountants sets out ethical standards that are designed to guide professional accountants in the practice of their profession and in recognizing their responsibility to public interest.
- The fundamental principles of ethics which are contained in the code of ethics establish the standard of behavior expected of a professional accountant. These principles are integrity, objectivity, professional competence and due care, confidentiality, and professional behavior.
- A professional accountant should have the appropriate skills and qualities below to ensure that the client receives the best value for the services that they pay for. Examples of these skills and qualities are interpersonal skills, communication skills, intellectual skills, good professional values and ethics, education, and experience.
- As technology continues to disrupt the accountancy profession, accountants have seen their roles expand beyond the conventional fields of financial recordkeeping and auditing.
The Code of Ethics For Professional Accountants
The accounting profession, also referred to as accountancy, is a well-respected and recognized profession worldwide. When you’re an accountant, many people and businesses rely on you to provide them financial information that can help them make important financial decisions.
Similar to other professions, accountancy is guided by a set of ethical standards that accountants must observe and follow in order to maintain the integrity and prestige of the profession. These ethical standards are embodied in the International Code of Ethics for Professional Accountants.
The International Code of Ethics For Professional Accountants sets out fundamental principles of ethics for professional accountants, reflecting the profession’s recognition of its public interest responsibility.
The International Code of Ethics For Professional Accountants is designed to guide accountants when they are faced with pressures, conflicting interests, and ethical dilemmas. It guides accountants to conduct business activities accordingly with honesty and integrity, and to act in the interest of the public.
The main product of accounting is financial information that many stakeholders would rely to make important financial decisions. Therefore, the quality, relevance and reliability of financial information depends on the accountant who prepares them.
As a professional accountant, you’re required to comply with the fundamental principles of ethics in order to achieve the objectives of the accountancy profession. Below are the five fundamental principles of ethics for professional accountants that are set out in the code of ethics.
- Integrity
- Objectivity
- Professional Competence and Due Care
- Confidentiality
- Professional Behavior
Every accountant has the responsibility to take the necessary actions when a possible breach of the code is identified that may affect their ability to comply with the above principles. We’ll briefly discuss each principle later.
Who Develops the International Code of Ethics For Professional Accountants?
The International Ethics Standard Board for Accountants (IESBA) is an independent standard-setting body that serves the public interest by setting high-quality, internationally appropriate ethics standards for professional accountants. These standards, which also include requirements for auditor independence, are compiled in the International Code of Ethics for Professional Accountants.
Supporting the IESBA is the International Federation of Accountants (IFAC). Founded in 1977, the IFAC is the global organization for the accountancy profession that is dedicated to serving the public interest by strengthening the profession and contributing to the development of strong and sustainable organizations, markets and economies.
Below are some of the roles and duties of IFAC:
- Advocates for transparency, accountability, and comparability of financial reporting;
- Helps develop the accountancy profession;
- Communicates the importance and value of accountants to the global financial structure; and
- Contributes to the development, adoption and implementation of high-quality international ethics standards for accountants, primarily through its support of the IESBA.
The members of IESBA are appointed by the IFAC Board, based on recommendations from the IFAC Nominating Committee and with the approval of the Public Interest Oversight Board (PIOB). The PIOB oversees the activities of both the IESBA and IFAC to ensure that they are responsive to the interests of the public. It was formed on February 28, 2005 in response to a series of corporate scandals that undermined public confidence on auditors.
The Professional Accountant
The term, Professional Accountant, has oftentimes been mentioned in the code of ethics. But who are those being referred to as professional accountants?
The International Code of Ethics For Professional Accountants defines a Professional Accountant as a member of an International Federation of Accountants (IFAC) member body. The term also refers to individual professional accountants in business and to professional accountants in public practice and their firms.
This definition can be found in the glossary of terms of the International Code of Ethics For Professional Accountants. It also categorizes professional accountants into “those in business” and “those in public practice”.
Professional accountants in business are those working in areas such as commerce, industry, service, the public sector, education, the not-for-profit sector, or in regulatory or professional bodies, who might be an employee, contractor, partner, director (executive or non-executive), owner-manager or volunteer. Professional accountants in public practice, on the other hand, are those who work in a firm that provides professional services (e.g. audit, tax or consulting). The term also refers to a firm of professional accountants in public practice.
The above definition, however, is considered not helpful in the public’s understanding of the term professional accountant. Furthermore, it does not convey an understanding of the roles of a professional accountant and their functions and competence. It also doesn’t recognize those that are not members of IFAC member bodies.
To address these issues, a modernized definition of the professional accountant was constructed by the IFAC Task Force.
The proposed definition of the professional accountant by the IFAC task force is as follows:
The term professional accountant</b> describes a person who has expertise in the field of accountancy, achieved through formal education and practical experience, and who:
- Demonstrates and maintains competence;
- Complies with a code of ethics;
- Is held to a high professional standard; and,
- Is subject to enforcement by a professional accountancy organization or other regulatory mechanism.
This definition was organized into two descriptive levels, i.e. what a professional accountant is, and what a professional accountant does. A third level, which is optional and can be added by boards and committees to the proposed definition, describes how professional accountants can be differentiated from one another by certain factors such as competence, responsibilities, and services provided.
The proposed definition was constructed to:
- Include members of other organizations (other than IFAC member bodies) or individuals subject to qualification and oversight.
- Facilitate the identification of the primary users of professional standards set by the independent standard-setting boards that operate under the guidance of IFAC.
- Provide some guidance at the national or jurisdictional level by enabling a clearer understanding of the intended users of the IFAC standards.
- Provide an understanding of the breadth of competence and functions that can be demonstrated by professional accountants.
- Be brief, easy-to-understand, and provide the general public with a broad understanding of accountancy.
- Clarify that many other terms may be used within various jurisdictions to refer to those encompassed in the term professional accountant and such terms may be based on local law or regulation.
The Fundamental Principles of Ethics
Disclaimer: The Handbook of the International Code of Ethics for Professional Accountants is published by IFAC, making them the copyright owner of the handbook. The Fundamental Principles of Ethics was comprehensively discussed in the handbook. The descriptions below about the principles only serve as an introduction and no copyright infringement is intended. For the official and complete text of this handbook, you may visit the IESBA website where a copy can be downloaded for personal use.
The fundamental principles of ethics are integrity, objectivity, professional competence and due care, confidentiality, and professional behavior. These principles establish the standard of behavior expected of a professional accountant.
Integrity
Being a professional accountant entails unconditional commitment to integrity. Under this principle, professional accountants:
- Should be straightforward and honest in all professional and business relationships.
- Must exhibit truthfulness and fair dealing in their actions and must be free from intentional manipulations.
- Must not agree when the client insists on preparing the financial statements in a way that could be misleading or not in accordance with applicable standards. This is necessary even though they may serve their client to the best of their abilities.
- Must disassociate themselves from reports or other information that are materially false, provided recklessly, or obscured to mislead.
Objectivity
Neutrality and fairness are very important in the performance of services by an accountant. Under the principle of objectivity, professional accountants:
- Should not allow bias, conflict of interest or undue influence of others to override and compromise their professional or business judgments.
- Must be neutral and fair and must always maintain an impartial attitude in all matters.
- Must be independent to avoid any special relationships or financial interests that may compromise their objectivity.
- Must have opinions that are based on facts and evidences and not on any preconceived notions they may have.
- Must not perform any professional services where their judgment may be unduly influenced by others.
Professional Competence and Due Care
Being competent and performing with due care is a responsibility of an accountant. In compliance with the principle of professional competence and due care, professional accountants:
- Should attain and maintain professional knowledge and skills at the level required to ensure that their client or employer receives competent professional services based on current developments in practice, legislation and techniques.
- Must act diligently and in accordance with applicable technical and professional standards when performing professional activities or services.
- Must have adequate knowledge, skills and experience in the practice of their profession.
- Must undertake continuing professional development to remain competent, to develop technical and professional skills, and to keep pace with changes in accounting standards and regulations.
- Must act in accordance with the requirements of an assignment, carefully, thoroughly, and on a timely basis.
- Should ensure that those working under their authority have appropriate training and supervision.
- Should make their clients, employers and other users of their services aware of the limitations in the scope of their services.
Confidentiality
Keeping confidential information is an essential element in any professional and business relationship. Under the principle of confidentiality, professional accountants:
- Should respect the confidentiality of the information acquired as a result of professional and business relationships and, therefore, not disclose any such information to third parties without proper and specific authority, unless there is a legal or professional right or duty to disclose.
- Must not use the confidential information for their personal advantage or the advantage of third parties.
- Must continue to comply with the principle of confidentiality even after the end of the relationship between them and their client or employer. This also includes not disclosing or using any confidential information after the relationship ended.
Professional Behavior
Belonging to a profession that is respected and recognized worldwide, professional accountants:
- Must comply with relevant laws and regulations.
- Must behave in a manner consistent with the profession’s responsibility to act in the public interest.
- Avoid any action or conduct which might discredit the profession.
- Must not bring the profession into disrepute when marketing and promoting themselves and their work.
Qualities and Skills of a Professional Accountant
As a professional accountant, you should have the skills and qualities below to ensure that your client receives the best value for the services that they pay for. This is consistent with the principle of professional competence.
Below are some of the qualities and skills that a professional accountant should have.
Good Professional Values and Ethics
Observing good professional values and ethical standards will increase the confidence of your client and other stakeholders in your services as an accountant. No stakeholder would rely on the work of an accountant who has breached any of the fundamental principles in the code of ethics.
Education and Experience
You should have the adequate knowledge, skills and experience in order to provide the best services that are ideal for the level of position you have with the company. If you’re just starting out in your field, it’s best to focus on getting the necessary experience first before.
Continue educating yourself with all the changes and updates that are happening in your industry and the accountancy profession. With the internet, current information is just at the tip of your fingers.
Continuing Professional Development (CPD)
To remain competent in your industry, you need to undergo continuing professional development and training as an accountant to further develop your skills and keep pace with changes in financial reporting standards, taxation laws and local and international business environments.
Aside from acquiring experience and knowledge, CPDs are required for you to continue practicing as an accountant. They could also help you perform your role competently and remain knowledgeable with current practices and technologies.
Certifications
While a basic education in accounting and bookkeeping is a minimum requirement for bookkeepers, higher level accounting positions in the business organization that involve analysis, planning, decision making, and advice requires certifications or professional licenses. Examples of these certifications are Certified Public Accountant (CPA), Chartered Accountant (CA), Certified Management Accountant (CMA), Certified Internal Auditor (CIA), and other certifications that are recognized by authoritative bodies in the government and private sectors.
Interpersonal Skills
Good interpersonal skills are more important than ever as modern business practices push accountants to learn to get along with a variety of people from different backgrounds and with different goals. If you’re an accountant in a higher position, you must possess the skills to lead, motivate and influence your subordinates. You should learn to resolve conflicts effectively and delegate tasks to others.
Even though the COVID-19 pandemic has caused many people to work remotely in the comfort of their own homes without having to deal with many people in the workplace physically, it’s still important that you develop and improve on your interpersonal skills in preparation for any video conference or potential client meetup.
Communication Skills
Even if a business has the best product to offer to their customers, without effective communication in the form of marketing, the product won’t sell and this could lead to underperformance and loss of sales. The same concept goes with professional accountants when communicating with their employers, investors and potential clients. Without good communication skills, you may find yourself not as effective as those who have mastered the art of communication in the workplace, even if you’re great in accounting.
Effective communication skills are necessary when communicating information with various people. Miscommunication due to poor communication skills by the accountant may have a detrimental effect on the decisions of management and the company as a whole. Communication skills can make or break any potential partnership or investment that a company may acquire from investors, other businesses and the government.
Intellectual Skills
The work of an accountant involves objective and critical analysis of facts and financial information that are important to the company. This requires being both rational and skeptical when making judgments or evaluating critical information.
Aside from accounting and auditing knowledge, you should also have should have general knowledge about business operations, legalities, economics, sociopolitical landscape, cultural, and even the history of the country where your company operations are based. This is important as these factors are usually interrelated and have a direct or indirect effect with each other.
The Expanding Roles of a Professional Accountant
The roles of an accountant conventionally revolve around bookkeeping, preparation of various financial reports, taxation, and auditing. However, as accounting technology continues to disrupt the once tedious task of record keeping and error elimination, accountants have seen their roles expanding to the fields of financial consulting and information systems development.
Accountants have become part of the management team where they provide critical financial information, give informed recommendations to assist on decision making, and help in business planning. Furthermore, their responsibilities have extended beyond client, investor and employer relationships. They must now equally serve the public’s interests which also include environmental concerns.
Accountants can take on the roles of the following:
- Management consultant and business planner
- Information systems analyst
- Financial analyst and forecaster
Management consultant and business planner
As a management consultant and business planner, you can provide information and give advice to management concerning strategic planning, product costing, budgeting, employee benefits, retirement plans, product competitive advantage, and customer service. Aside from giving information and advice, you can also assist in financial planning of future projects, budgets and long-term goals of the company.
Information systems analyst
If you’re working in the accounting information system of a company, you participate in the design, development, implementation, and maintenance of the accounting system that is in accordance with the accounting process requirements. You also ensure that proper controls are in place so that the electronic systems run efficiently and effectively.
Financial analyst and forecaster
Accountants interpret the information contained in financial statements and reports through analysis of accounting ratios and trends. As a financial analyst, you help management analyze the financial statements and determine the profitability, efficiency, liquidity, and stability of the company based on past performances. You also serve as economic forecaster by determining the trends that are vital to the profitability and existence of the company for the long term.
Review Questions
- What are the five fundamental principles of ethics?
- What is a professional accountant? Why is there a need to update the current definition of a professional accountant found in the International Code of Ethics For Professional Accountants?
- Why is it important for an accountant to have good communication skills?
- Why is there a need for a code of ethics to guide professional accountants?
- Why are accountants required to undergo continuing professional development trainings and seminars?
