APES 110 Code of Ethics for Professional
Accountants (including Independence
Standards)
[Supersedes APES 110 Code of Ethics for Professional Accountants
(Issued in December 2010 and amended in December 2011, May 2013, November 2013,
May 2017 and April 2018)]
ISSUED: November 2018
Copyright © 2018 Accounting Professional & Ethical Standards Board Limited (“APESB”). All rights reserved. Apart from fair dealing for the
purpose of study, research, criticism and review as permitted by the Copyright Act 1968, no part of these materials may be reproduced,
modified, or reused or redistributed for any commercial purpose, or distributed to a third party for any such purpose, without the prior written
permission of APESB.
Any permitted reproduction including fair dealing must acknowledge APESB as the source of any such material reproduced and any
reproduction made of the material must include a copy of this original notice.
APES 110 Code of Ethics for Professional Accountants (including Independence Standards) is based on the International Code of Ethics for
Professional Accountants (including International Independence Standards) and the Final Pronouncement: Revisions to the Code Pertaining to
the Offering and Accepting of Inducements of the International Ethics Standards Board for Accountants (IESBA), published by the
International Federation of Accountants (IFAC) in April 2018 and July 2018 respectively, and is used with permission of IFAC.
International Code of Ethics for Professional Accountants (including International Independence Standards) © April 2018 by the International
Federation of Accountants.
Final Pronouncement: Revisions to the Code Pertaining to the Offering and Accepting of Inducements © July 2018 by the International
Federation of Accountants.
Contact Permissions@ifac.org for permission to reproduce, store or transmit, or to make other similar uses of the International Code of Ethics for
Professional Accountants (including International Independence Standards).
2
CONTENTS
Page
GUIDE TO THE CODE ............................................................................................................................ 3
CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS (INCLUDING
INDEPENDENCE STANDARDS) ............................................................................................................ 9
SCOPE AND APPLICATION ................................................................................................................. 12
GLOSSARY ........................................................................................................................................... 13
PART 1 – COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND
CONCEPTUAL FRAMEWORK ............................................................................................. 24
PART 2 – MEMBERS IN BUSINESS (INCLUDING EMPLOYMENT RELATIONSHIPS OF
MEMBERS IN PUBLIC PRACTICE) ..................................................................................... 37
PART 3 – MEMBERS IN PUBLIC PRACTICE ...................................................................................... 68
INDEPENDENCE STANDARDS (PARTS 4A AND 4B)
[AUST] PREFACE: PART 4A AND PART 4B........................................................................................107
PART 4A – INDEPENDENCE FOR AUDIT AND REVIEW ENGAGEMENTS .................................... 108
PART 4B – INDEPENDENCE FOR ASSURANCE ENGAGEMENTS OTHER
THAN AUDIT AND REVIEW ENGAGEMENTS ............................................................... 177
TRANSITIONAL PROVISIONS ........................................................................................................... 210
CONFORMITY WITH INTERNATIONAL PRONOUNCEMENTS ........................................................ 211
3
GUIDE TO THE CODE
(This Guide is a non-authoritative aid to using the Code.)
Purpose of the Code
1. The Code of Ethics for Professional Accountants (including Independence Standards) (“the
Code”) sets out fundamental principles of ethics for Members, reflecting the profession’s
recognition of its public interest responsibility. These principles establish the standard of
behaviour expected of a Member. The fundamental principles are: integrity, objectivity,
professional competence and due care, confidentiality, and professional behaviour.
2. The Code provides a conceptual framework that Members are to apply in order to identify,
evaluate and address threats to compliance with the fundamental principles. The Code sets out
requirements and application material on various topics to help Members apply the conceptual
framework to those topics.
3. In the case of Audits, Reviews and other assurance engagements, the Code sets out
Independence Standards, established by the application of the conceptual framework to threats
to Independence in relation to these engagements.
How the Code is Structured
4. The Code contains the following material:
Glossary, which contains defined terms (together with additional explanations where
appropriate) and described terms which have a specific meaning in certain parts of the
Code. For example, as noted in the Glossary, in Part 4A, the term Audit Engagement
applies equally to both Audit and Review Engagements.
Part 1 Complying with the Code, Fundamental Principles and Conceptual Framework,
which includes the fundamental principles and the conceptual framework and is applicable
to all Members.
Part 2 Members in Business (including employment relationships of Members in Public
Practice), which sets out additional material that applies to Members in Business when
performing Professional Activities. Members in Business include Members employed,
engaged or contracted in an executive or non-executive capacity in, for example:
o Commerce, industry or service.
o The public sector.
o Education.
o The not-for-profit sector.
o Regulatory or professional bodies.
Part 2 is also applicable to individuals who are Members in Public Practice
when performing
Professional Activities pursuant to their relationship with the Firm, whether as a contractor,
employee or owner.
Part 3 Members in Public Practice, which sets out additional material that applies to
Members in Public Practice when providing Professional Services.
Independence Standards, which sets out additional material that applies to Members in
Public Practice when providing assurance services, as follows:
o Part 4A Independence for Audit and Review Engagements, which applies when
performing Audit or Review Engagements.
4
o Part 4B Independence for Assurance Engagements Other than Audit and Review
Engagements, which applies when performing Assurance Engagements that are not
Audit or Review Engagements.
5. The Code contains sections which address specific topics. Some sections contain subsections
dealing with specific aspects of those topics. Each section of the Code is structured, where
appropriate, as follows:
Introduction – sets out the subject matter addressed within the section, and introduces the
requirements and application material in the context of the conceptual framework.
Introductory material contains information, including an explanation of terms used, which
is important to the understanding and application of each Part and its sections.
Requirements establish general and specific obligations with respect to the subject matter
addressed.
Application material – provides context, explanations, suggestions for actions or matters to
consider, illustrations and other guidance to assist in complying with the requirements.
How to Use the Code
The Fundamental Principles, Independence and Conceptual Framework
6. The Code requires Members to comply with the fundamental principles of ethics. The Code also
requires Members to apply the conceptual framework to identify, evaluate and address threats to
compliance with the fundamental principles. Applying the conceptual framework requires
exercising professional judgement, remaining alert for new information and to changes in facts
and circumstances, and using the reasonable and informed third party test.
7. The conceptual framework recognises that the existence of conditions, policies and procedures
established by the profession, legislation, regulation, the Firm, or the employing organisation
might impact the identification of threats. Those conditions, policies and procedures might also
be a relevant factor in the Member’s evaluation of whether a threat is at an Acceptable Level.
When threats are not at an Acceptable Level, the conceptual framework requires the Member to
address those threats. Applying safeguards is one way that threats might be addressed.
Safeguards are actions individually or in combination that the Member takes that effectively
reduce threats to an Acceptable Level.
8. In addition, the Code requires Members to be independent when performing Audit, Review and
other assurance engagements. The conceptual framework applies in the same way to identifying,
evaluating and addressing threats to Independence as to threats to compliance with the
fundamental principles.
9. Complying with the Code requires knowing, understanding and applying:
All of the relevant provisions of a particular section in the context of Part 1, together with
the additional material set out in Sections 200, 300, 400 and 900, as applicable.
All of the relevant provisions of a particular section, for example, applying the provisions
that are set out under the subheadings titled “General” and “All Audit Clients” together with
additional specific provisions, including those set out under the subheadings titled “Audit
Clients that are not Public Interest Entities” or “Audit Clients that are Public Interest
Entities.”
All of the relevant provisions set out in a particular section together with any additional
provisions set out in any relevant subsection.
5
Requirements and Application Material
10. Requirements and application material are to be read and applied with the objective of complying
with the fundamental principles, applying the conceptual framework and, when performing Audit,
Review and other assurance engagements, being independent.
Requirements
11. Requirements are designated with the letter “R”, denoted in bold-type and, in most cases, include
the word “shall. The word “shallin the Code imposes an obligation on a Member or Firm to
comply with the specific provision in which “shallhas been used.
12. In some situations, the Code provides a specific exception to a requirement. In such a situation,
the provision is designated with the letter “Rbut uses “mayor conditional wording.
13. When the word “mayis used in the Code, it denotes permission to take a particular action in
certain circumstances, including as an exception to a requirement. It is not used to denote
possibility.
14. When the word “mightis used in the Code, it denotes the possibility of a matter arising, an event
occurring or a course of action being taken. The term does not ascribe any particular level of
possibility or likelihood when used in conjunction with a threat, as the evaluation of the level of a
threat depends on the facts and circumstances of any particular matter, event or course of action.
Application Material
15. In addition to requirements, the Code contains application material that provides context relevant
to a proper understanding of the Code. In particular, the application material is intended to help a
Member to understand how to apply the conceptual framework to a particular set of
circumstances and to understand and comply with a specific requirement. While such application
material does not of itself impose a requirement, consideration of the material is necessary to the
proper application of the requirements of the Code, including application of the conceptual
framework. Application material is designated with the letter “A”.
16. Where application material includes lists of examples, these lists are not intended to be
exhaustive.
Appendix to Guide to the Code
17. Appendix 1 to this Guide provides an overview of the Code.
The Code and other Professional Standards
18. APESB develops and issues in the public interest, professional and ethical pronouncements that
apply to Members of the Professional Bodies and comprise:
APES 110 Code of Ethics for Professional Accountants (including Independence
Standards);
professional standards; and
guidance notes.
19. All Members are required to comply with the Code and relevant Professional Standards, and to
be familiar with guidance notes, when providing Professional Activities.
20. The structure of APESB pronouncements and the pronouncements issued to date are contained
in Appendices 2 and 3 to this Guide.
6
PART 1
COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK
(ALL MEMBERS - SECTIONS 100 TO 199)
PART 3
MEMBERS IN PUBLIC PRACTICE
(SECTIONS 300 TO 399)
GLOSSARY
(ALL MEMBERS)
PART 2
MEMBERS IN BUSINESS (INCLUDING EMPLOYMENT
RELATIONSHIPS OF MEMBERS IN PUBLIC PRACTICE)
(SECTIONS 200 TO 299)
(PART 2 IS ALSO APPLICABLE TO INDIVIDUAL MEMBERS IN PUBLIC PRACTICE
WHEN PERFORMING PROFESSIONAL ACTIVITIES
PURSUANT TO THEIR RELATIONSHIP WITH THE FIRM)
INDEPENDENCE STANDARDS
(PARTS 4A AND 4B)
PART 4A INDEPENDENCE FOR AUDIT AND REVIEW ENGAGEMENTS
(SECTIONS 400 TO 899)
PART 4B INDEPENDENCE FOR ASSURANCE ENGAGEMENTS OTHER
THAN AUDIT AND REVIEW ENGAGEMENTS
(SECTIONS 900 TO 999)
Appendix 1 to Guide to the Code
OVERVIEW OF THE CODE
7
Appendix 2 to Guide to the Code
Structure of APESB
pronouncements
Conceptual Framework
Principles based
Mandatory for professional
accountants
Standards
Introduces principles
Mandatory requirements in bold-type
Guidance and/or explanation in regular
type
Guidance notes
Do not introduce new principles
Guidance on a specific matter on which
the principles are already stated in a
Standard
Guidance is only in regular type
APES 400
Series
APES 300
Series
APES 200
Series
APES 110: Code of Ethics for
Professional Accountants
(including Independence
Standards)
APESB Standards
Members in
Public Practice
All Members
Members
In Business
Guidance notes
Members in
Public Practice
All Members
Members
In Business
APES GN 40
Series
APES GN 30
Series
APES GN 20
Series
8
Appendix 3 to Guide to the Code
APESB issued pronouncements as at November 2018
Professional Standards
Classification and Range
APES
Reference
Name of Standard or
Guidance Note
Introductory
Conceptual Framework
for all Members
APES 110
Due process and working procedures
Code of Ethics for Professional Accountants
(including Independence Standards)
Standards & Guidance Notes for all Members
APES 200-299
APES GN 20-29
APES 205
APES 210
APES 215
APES 220
APES 225
APES 230
APES GN 20
APES GN 21
Conformity with Accounting Standards
Conformity with Auditing and Assurance
Standards
Forensic Accounting Services
Taxation Services
Valuation Services
Financial Planning Services
Scope and Extent of Work for Valuation Services
Valuation Services for Financial Reporting
Standards & Guidance Notes for Members in Public Practice
APES 300-399
APES GN 30-39
APES 305
APES 310
APES 315
APES 320
APES 325
APES 330
APES 345
APES 350
APES GN 30
APES GN 31
Terms of Engagement
Client Monies
Compilation of Financial Information
Quality Control for Firms
Risk Management for Firms
Insolvency Services
Reporting on Prospective Financial Information
Prepared in connection with a Disclosure
Document
Participation by Members in Public Practice in Due
Diligence Committees in connection with a Public
Document
Outsourced Services
Professional and Ethical Considerations relating to
Low Doc Offering Sign-offs
Standards & Guidance Notes for Members in Business
APES 400-499
APES GN 40-49
-
APES GN 40
APES GN 41
Ethical Conflicts in the Workplace – Considerations
for Members in Business
Management Representations
9
CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS
(INCLUDING INDEPENDENCE STANDARDS)
TABLE OF CONTENTS
SCOPE AND APPLICATION ............................................................................................................. 12
GLOSSARY ........................................................................................................................................ 13
PART 1 - COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND
CONCEPTUAL FRAMEWORK ............................................................................................. 24
100 COMPLYING WITH THE CODE ............................................................................................ 25
110 THE FUNDAMENTAL PRINCIPLES ...................................................................................... 26
111 - INTEGRITY ................................................................................................................... 27
112 - OBJECTIVITY ............................................................................................................... 27
113 - PROFESSIONAL COMPETENCE AND DUE CARE ................................................... 27
114 - CONFIDENTIALITY ...................................................................................................... 28
115 - PROFESSIONAL BEHAVIOUR .................................................................................... 29
120 THE CONCEPTUAL FRAMEWORK ...................................................................................... 31
PART 2 - MEMBERS IN BUSINESS (INCLUDING EMPLOYMENT RELATIONSHIPS
OF MEMBERS IN PUBLIC PRACTICE) ............................................................................... 37
200 APPLYING THE CONCEPTUAL FRAMEWORK MEMBERS IN BUSINESS .................... 38
210 CONFLICTS OF INTEREST .................................................................................................. 42
220 PREPARATION AND PRESENTATION OF INFORMATION ............................................... 45
230 ACTING WITH SUFFICIENT EXPERTISE ............................................................................ 49
240 FINANCIAL INTERESTS, COMPENSATION AND INCENTIVES LINKED TO
FINANCIAL REPORTING AND DECISION MAKING ............................................................ 50
250 INDUCEMENTS, INCLUDING GIFTS AND HOSPITALITY .................................................. 52
260 RESPONDING TO NON-COMPLIANCE WITH LAWS AND REGULATIONS ...................... 57
270 PRESSURE TO BREACH THE FUNDAMENTAL PRINCIPLES........................................... 65
PART 3 - MEMBERS IN PUBLIC PRACTICE ................................................................................... 68
300 APPLYING THE CONCEPTUAL FRAMEWORK MEMBERS IN PUBLIC
PRACTICE ............................................................................................................................. 69
310 CONFLICTS OF INTEREST .................................................................................................. 75
320 PROFESSIONAL APPOINTMENTS ...................................................................................... 80
321 SECOND OPINIONS ............................................................................................................. 84
330 FEES AND OTHER TYPES OF REMUNERATION .............................................................. 85
340 INDUCEMENTS, INCLUDING GIFTS AND HOSPITALITY .................................................. 88
350 CUSTODY OF CLIENT ASSETS ........................................................................................... 93
360 RESPONDING TO NON-COMPLIANCE WITH LAWS AND REGULATIONS ...................... 94
10
INDEPENDENCE STANDARDS (PARTS 4A AND 4B)
[AUST] PREFACE: PART 4A AND PART 4B ................................................................................. 107
PART 4A - INDEPENDENCE FOR AUDIT AND REVIEW ENGAGEMENTS ................................. 108
400 APPLYING THE CONCEPTUAL FRAMEWORK TO INDEPENDENCE FOR
AUDIT AND REVIEW ENGAGEMENTS .............................................................................. 109
410 FEES .................................................................................................................................... 121
411 COMPENSATION AND EVALUATION POLICIES .............................................................. 125
420 GIFTS AND HOSPITALITY .................................................................................................. 126
430 ACTUAL OR THREATENED LITIGATION .......................................................................... 127
510 FINANCIAL INTERESTS ..................................................................................................... 128
511 LOANS AND GUARANTEES ............................................................................................... 132
520 BUSINESS RELATIONSHIPS ............................................................................................. 134
521 FAMILY AND PERSONAL RELATIONSHIPS ..................................................................... 136
522 RECENT SERVICE WITH AN AUDIT CLIENT .................................................................... 139
523 SERVING AS A DIRECTOR OR OFFICER OF AN AUDIT CLIENT ................................... 140
524 EMPLOYMENT WITH AN AUDIT CLIENT .......................................................................... 142
525 TEMPORARY PERSONNEL ASSIGNMENTS .................................................................... 145
540 LONG ASSOCIATION OF PERSONNEL (INCLUDING PARTNER ROTATION)
WITH AN AUDIT CLIENT..................................................................................................... 146
600 PROVISION OF NON-ASSURANCE SERVICES TO AN AUDIT CLIENT ......................... 152
601 - ACCOUNTING AND BOOKKEEPING SERVICES .................................................... 156
602 - ADMINISTRATIVE SERVICES ................................................................................... 158
603 - VALUATION SERVICES ............................................................................................ 158
604 - TAX SERVICES .......................................................................................................... 160
605 - INTERNAL AUDIT SERVICES ................................................................................... 164
606 - INFORMATION TECHNOLOGY SYSTEMS SERVICES ........................................... 167
607 - LITIGATION SUPPORT SERVICES .......................................................................... 168
608 - LEGAL SERVICES ..................................................................................................... 169
609 - RECRUITING SERVICES .......................................................................................... 170
610 - CORPORATE FINANCE SERVICES ......................................................................... 172
800 REPORTS ON SPECIAL PURPOSE FINANCIAL STATEMENTS THAT
INCLUDE A RESTRICTION ON USE AND DISTRIBUTION (AUDIT AND
REVIEW ENGAGEMENTS) ................................................................................................. 174
PART 4B - INDEPENDENCE FOR ASSURANCE ENGAGEMENTS OTHER THAN
AUDIT AND REVIEW ENGAGEMENTS ............................................................................. 177
900 APPLYING THE CONCEPTUAL FRAMEWORK TO INDEPENDENCE FOR
ASSURANCE ENGAGEMENTS OTHER THAN AUDIT AND REVIEW
ENGAGEMENTS ................................................................................................................. 178
905 FEES .................................................................................................................................... 185
906 GIFTS AND HOSPITALITY .................................................................................................. 187
907 ACTUAL OR THREATENED LITIGATION .......................................................................... 188
910 FINANCIAL INTERESTS ..................................................................................................... 189
11
911 LOANS AND GUARANTEES ............................................................................................... 192
920 BUSINESS RELATIONSHIPS ............................................................................................. 194
921 FAMILY AND PERSONAL RELATIONSHIPS ..................................................................... 196
922 RECENT SERVICE WITH AN ASSURANCE CLIENT ........................................................ 199
923 SERVING AS A DIRECTOR OR OFFICER OF AN ASSURANCE CLIENT ....................... 200
924 EMPLOYMENT WITH AN ASSURANCE CLIENT .............................................................. 201
940 LONG ASSOCIATION OF PERSONNEL WITH AN ASSURANCE CLIENT ...................... 203
950 PROVISION OF NON-ASSURANCE SERVICES TO ASSURANCE CLIENTS
OTHER THAN AUDIT AND REVIEW ENGAGEMENT CLIENTS ....................................... 205
990 REPORTS THAT INCLUDE A RESTRICTION ON USE AND DISTRIBUTION
(ASSURANCE ENGAGEMENTS OTHER THAN AUDIT AND REVIEW
ENGAGEMENTS) ................................................................................................................ 208
TRANSITIONAL PROVISIONS ........................................................................................................ 210
CONFORMITY WITH INTERNATIONAL PRONOUNCEMENTS .................................................... 211
12
SCOPE AND APPLICATION
1.1 Accounting Professional & Ethical Standards Board Limited (APESB) issues APES 110
Code of Ethics for Professional Accountants (including Independence Standards) (this
Code). This Code is operative from 1 January 2020 and supersedes APES 110 Code of
Ethics for Professional Accountants (issued in December 2010 and subsequently amended
in December 2011, May 2013, November 2013, May 2017 and April 2018). Earlier adoption
of this Code is permitted. The transitional provision relating to Key Audit Partner rotation
shall apply up to the date specified in the transitional provision on page 210.
R1.2 Subject to paragraph 1.5, all Members in Australia shall comply with APES 110
including when providing Professional Services in an honorary capacity.
R1.3 All Members practising outside of Australia shall comply with APES 110 to the extent
to which they are not prevented from so doing by specific requirements of local laws
and/or regulations.
R1.4 In addition to the Members obligation to comply with the Code, Members shall
comply with other applicable Professional Standards and be familiar with relevant
guidance notes when providing Professional Activities.
1.5 This Code is not intended to detract from any responsibilities which may be imposed by law
or regulation. The AUASB has issued auditing standards as legislative instruments under
the Corporations Act 2001 (the Act). For audits and reviews under the Act, those standards
have legal enforceability. To the extent that those auditing standards make reference to
relevant ethical requirements, the requirements of APES 110 have legal enforceability due
to Auditing Standard ASA 102 Compliance with Ethical Requirements when Performing
Audits, Reviews and Other Assurance Engagements.
1.6 All references to Professional Standards, guidance notes and legislation are references to
those provisions as amended from time to time.
1.7 In applying the requirements outlined in this Code, Members shall be guided not merely by
the words but also by the spirit of this Code.
1.8 In this Code, unless otherwise specified, words in the singular include the plural and vice
versa, words of one gender include another gender, and words referring to persons include
corporations or organisations, whether incorporated or not.
13
GLOSSARY
In the Code of Ethics for Professional Accountants (including Independence Standards) the terms below
have the following meanings assigned to them.
In this Glossary, definitions are named in bold-type font with the explanations of defined terms shown
in regular font; italics are used for explanations of described terms which have a specific meaning in
certain parts of the Code or for additional explanations of defined terms. References are also provided
to terms described in the Code.
Defined terms are shown in the body of the Code in title case.
[AUST] AASB
Acceptable Level
The Australian statutory body called the Australian Accounting Standards
Board that was established under section 226 of the Australian Securities
and Investments Commission Act 1989 and is continued in existence by
section 261 of the Australian Securities and Investments Commission Act
2001.
A level at which a Member using the reasonable and informed third party
test would likely conclude that the Member complies with the fundamental
principles.
[AUST] Administration
An insolvency arrangement arising from an appointment, other than a
members' voluntary liquidation, under which an insolvent entity operates.
Advertising
Appropriate reviewer
Assurance Client
The communication to the public of information as to the services or skills
provided by Members in Public Practice with a view to procuring
professional business.
An appropriate reviewer is a professional with the necessary knowledge,
skills, experience and authority to review, in an objective manner, the
relevant work performed or service provided. Such an individual might be
a Member.
This term is described in paragraph 300.8 A4.
The responsible party that is the person (or persons) who:
(a) In a direct reporting engagement, is responsible for the subject
matter; or
(b) In an assertion-based engagement, is responsible for the subject
matter information and might be responsible for the subject matter.
Assurance
Engagement
An engagement in which a Member in Public Practice aims to obtain
sufficient appropriate evidence in order to express a conclusion designed
to enhance the degree of confidence of the intended users other than the
responsible party about the subject matter information (that is, the outcome
of the measurement or evaluation of an underlying subject matter against
criteria).
This includes an engagement in accordance with the Framework for
Assurance Engagements issued by the AUASB or in accordance with
specific relevant standards, such as International Standards on Auditing,
for Assurance Engagements.
14
(For guidance on Assurance Engagements, see the Framework for
Assurance Engagements issued by the AUASB. The Framework for
Assurance Engagements describes the elements and objectives of an
Assurance Engagement and identifies engagements to which Australian
Auditing Standards (ASAs), Standards on Review Engagements (ASREs)
and Standards on Assurance Engagements (ASAEs) apply.)
Assurance Team
(a) All members of the Engagement Team for the Assurance
Engagement;
(b) All others within a Firm who can directly influence the outcome of the
Assurance Engagement, including:
(i) Those who recommend the compensation of, or who provide direct
supervisory, management or other oversight of the Assurance
Engagement Partner in connection with the performance of the
Assurance Engagement;
(ii) Those who provide consultation regarding technical or industry
specific issues, transactions or events for the Assurance
Engagement; and
(iii) Those who provide quality control for the Assurance Engagement,
including those who perform the Engagement Quality Control
Review for the Assurance Engagement.
[AUST] AUASB
Audit
Audit Client
Audit Engagement
Audit report
The Australian statutory body called the Auditing and Assurance Standards
Board established under section 227A of the Australian Securities and
Investments Commission Act 2001.
In Part 4A, the term “audit applies equally to review.”
An entity in respect of which a Firm conducts an Audit Engagement. When the
client is a Listed Entity, Audit Client will always include its Related Entities.
When the Audit Client is not a Listed Entity, Audit Client includes those Related
Entities over which the client has direct or indirect control. (See also paragraph
R400.20.)
In Part 4A, the term “Audit Client” applies equally to Review Client.”
A reasonable Assurance Engagement in which a Member in Public Practice
expresses an opinion whether Financial Statements are prepared, in all
material respects (or give a true and fair view or are presented fairly, in all
material respects), in accordance with an applicable financial reporting
framework, such as an engagement conducted in accordance with Auditing
and Assurance Standards. This includes a statutory audit, which is an audit
required by legislation or other regulation.
In Part 4A, the term “Audit Engagement” applies equally to
Review Engagement.”
In Part 4A, the term “audit report applies equally to review report.”
15
Audit Team
(a) All members of the Engagement Team for the Audit Engagement;
(b) All others within a Firm who can directly influence the outcome of
the Audit Engagement, including:
[AUST] Auditing and
Assurance Standards
[AUST] Australian
Accounting Standards
Close Family
Conceptual framework
Contingent Fee
Cooling-off period
Direct Financial
Interest
In Part 4A, the term “Audit Team” applies equally to Review Team.”
The AUASB standards, as described in ASA 100 Preamble to AUASB
Standards, ASA 101 Preamble to Australian Auditing Standards and the
Foreword to AUASB Pronouncements, issued by the AUASB, and
operative from the date specified in each standard.
The Accounting Standards (including Australian Accounting Interpretations)
promulgated by the AASB.
A parent, child or sibling who is not an Immediate Family member.
This term is described in Section 120.
A fee calculated on a predetermined basis relating to the outcome of a
transaction or the result of the services performed by the Firm. A fee that is
established by a court or other public authority is not a Contingent Fee.
This term is described in paragraph R540.5 for the purposes of paragraphs
R540.11 to AUST R540.19.1.
A Financial Interest:
(a) Owned directly by and under the control of an individual or entity
(including those managed on a discretionary basis by others); or
(b) Beneficially owned through a collective investment vehicle, estate, trust
or other intermediary over which the individual or entity has control, or
the ability to influence investment decisions.
Those who recommend the compensation of, or who provide
direct supervisory, management or other oversight of the
Engagement Partner in connection with the performance of
the Audit Engagement, including those at all successively
senior levels above the Engagement Partner through to the
individual who is the Firm’s senior or managing partner (chief
executive or equivalent);
Those who provide consultation regarding technical or industry-
specific issues, transactions or events for the engagement; and
Those who provide quality control for the engagement, including
those who perform the Engagement Quality Control Review for
the engagement; and
All those within a Network Firm who can directly influence
the outcome of the Audit Engagement.
(i)
(ii)
(iii)
(c)
16
Director or Officer
Eligible Audit
Engagement
Eligible Assurance
Engagement
Engagement Partner
Engagement Period
(Audit and Review
Engagements)
Engagement Period
(Assurance
Engagements Other than
Audit and Review
Engagements)
Engagement Quality
Control Review
Engagement Team
1
Existing Accountant
External Expert
Those charged with the governance of an entity, or acting in an equivalent
capacity, regardless of their title.
This includes a Director or Officer as defined in Section 9 of the
Corporations Act 2001.
This term is described in paragraph 800.2 for the purposes of Section 800.
This term is described in paragraph 990.2 for the purposes of Section 990.
The partner or other person in the Firm who is responsible for the engagement
and its performance, and for the report that is issued on behalf of the Firm, and
who, where required, has the appropriate authority from a professional, legal
or regulatory body.
The Engagement Period starts when the Audit Team begins to perform the
audit. The Engagement Period ends when the audit report is issued. When the
engagement is of a recurring nature, it ends at the later of the notification
by either party that the professional relationship has ended or the issuance
of the final audit report.
The Engagement Period starts when the Assurance Team begins to
perform assurance services with respect to the particular engagement. The
Engagement Period ends when the assurance report is issued. When the
engagement is of a recurring nature, it ends at the later of the notification
by either party that the professional relationship has ended or the issuance
of the final assurance report.
A process designed to provide an objective evaluation, on or before the report
is issued, of the significant judgements the Engagement Team made and the
conclusions it reached in formulating the report.
All partners and staff performing the engagement, and any individuals engaged
by the Firm or a Network Firm who perform assurance procedures on the
engagement. This excludes External Experts engaged by the Firm or by a
Network Firm.
A Member in Public Practice currently holding an audit appointment or
carrying out accounting, tax, consulting or similar Professional Services for
a client.
An individual (who is not a partner or a member of the professional staff,
including temporary staff, of the Firm or a Network Firm) or organisation
possessing skills, knowledge and experience in a field other than
accounting or auditing, whose work in that field is used to assist the
Member in obtaining sufficient appropriate evidence.
1
The definition of Engagement Team in APES 110 has been amended from the International equivalent to
remove the reference to individuals within the client’s internal audit function who provide direct assistance on
an Audit Engagement as the AUASB has prohibited the use of direct assistance in Auditing and Assurance
Standard ASA 610 Using the Work of Internal Auditors (November 2013).
17
Financial Interest
An interest in an equity or other security, debenture, loan or other debt
instrument of an entity, including rights and obligations to acquire such an
interest and derivatives directly related to such interest.
Financial Statements
A structured representation of Historical Financial Information, including related
notes, intended to communicate an entity’s economic resources or obligations
at a point in time or the changes therein for a period of time in accordance with
a financial reporting framework. The related notes ordinarily comprise a
summary of significant accounting policies and other explanatory information.
The term can relate to a complete set of Financial Statements, but it can also
refer to a single Financial Statement, for example, a balance sheet, or a
statement of revenues and expenses, and related explanatory notes. The
requirements of the financial reporting framework determine the form and
content of the Financial Statements and what constitutes a complete set of
Financial Statements. For the purposes of this Code, financial report is
considered to be an equivalent term to Financial Statements.
Financial Statements
on which the Firm will
express an Opinion
In the case of a single entity, the Financial Statements of that entity. In the
case of consolidated Financial Statements, also referred to as group
Financial Statements, the consolidated Financial Statements.
Firm
(a) A sole practitioner, partnership or corporation or other entity of
professional accountants;
(b) An entity that controls such parties, through ownership, management
or other means;
(c) An entity controlled by such parties, through ownership,
management or other means; or
(d) An Auditor-General’s office or department.
Fundamental principles
Paragraphs 400.4 and 900.3 explain how the word “Firm” is used to
address the responsibility of Members and Firms for compliance with
Parts 4A and 4B, respectively.
This term is described in paragraph 110.1 A1. Each of the fundamental
principles is, in turn, described in the following paragraphs:
Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour
R111.1
R112.1
R113.1
R114.1
R115.1
Historical Financial
Information
Information expressed in financial terms in relation to a particular entity, derived
primarily from that entitys accounting system, about economic events
occurring in past time periods or about economic conditions or circumstances
at points in time in the past.
Immediate Family
A spouse (or equivalent) or dependant.
18
Independence
Independence comprises:
(a) Independence of mind the state of mind that permits the expression
of a conclusion without being affected by influences that compromise
professional judgement, thereby allowing an individual to act with
integrity, and exercise objectivity and professional scepticism.
(b) Independence in appearance the avoidance of facts and
circumstances that are so significant that a reasonable and informed
third party would be likely to conclude that a Firm’s, or an Audit or
Assurance Team member’s integrity, objectivity or professional
scepticism has been compromised.
Indirect Financial
Interest
Inducement
As set out in paragraphs 400.5 and 900.4, references to an individual or
Firm being “independent” mean that the individual or Firm has complied
with Parts 4A and 4B, as applicable.
A Financial Interest beneficially owned through a collective investment
vehicle, estate, trust or other intermediary over which the individual or entity
has no control or ability to influence investment decisions.
An object, situation, or action that is used as a means to influence another
individual’s behaviour, but not necessarily with the intent to improperly
influence that individual’s behaviour.
Inducements can range from minor acts of hospitality between business
colleagues (for Members in Business), or between Members and existing
or prospective clients (for Members in Public Practice), to acts that result in
non-compliance with laws and regulations (“NOCLAR”). An Inducement
can take many different forms, for example:
Gifts.
Hospitality.
Entertainment.
Political or charitable donations.
Appeals to friendship and loyalty.
Employment or other commercial opportunities.
Preferential treatment, rights or privileges.
Key Audit Partner
The Engagement Partner, the individual responsible for the Engagement
Quality Control Review, and other audit partners, if any, on the Engagement
Team who make key decisions or judgements on significant matters with
respect to the audit of the Financial Statements on which the Firm will express
an Opinion. Depending upon the circumstances and the role of the individuals
on the audit, “other audit partnersmight include, for example, audit partners
responsible for significant subsidiaries or divisions.
Listed Entity
An entity whose shares, stock or debt are quoted or listed on a recognised
stock exchange, or are marketed under the regulations of a recognised stock
exchange or other equivalent body.
19
May
This term is used in the Code to denote permission to take a particular
action in certain circumstances, including as an exception to a requirement.
It is not used to denote possibility.
[AUST] Member
A member of a Professional Body that has adopted this Code as applicable to
their membership, as defined by that Professional Body.
In Part 1, the term “Memberrefers to individual Members in Business and to
Members in Public Practice and their Firms.
In Part 2, the term “Member refers to Members in Business, and also to
Members in Public Practice when performing Professional Activities pursuant
to their relationship with the Firm, whether as a contractor, employee or owner.
In Parts 3, 4A and 4B, the term Memberrefers to Members in Public Practice
and their Firms.
Member in Business
A Member 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.
Member in Public
Practice
A Member, irrespective of functional classification (for example, audit, tax
or consulting) in a Firm that provides Professional Services. This term is
also used to refer to a Firm of Members in Public Practice and means a
practice entity and a participant in that practice entity as defined by the
applicable Professional Body.
Might
This term is used in the Code to denote the possibility of a matter arising,
an event occurring or a course of action being taken. The term does not
ascribe any particular level of possibility or likelihood when used in
conjunction with a threat, as the evaluation of the level of a threat depends
on the facts and circumstances of any particular matter, event or course of
action.
Network
A larger structure:
(a) That is aimed at cooperation; and
(b) That is clearly aimed at profit or cost sharing or shares common
ownership, control or management, common quality control policies
and procedures, common business strategy, the use of a common
brand-name, or a significant part of professional resources.
Network Firm
A Firm or entity that belongs to a Network.
For further information, see paragraphs 400.50 A1 to 400.54 A1.
20
Non-compliance with
laws and regulations
(Members in Business)
Non-compliance with laws and regulations (“NOCLAR”) comprises acts of
omission or commission, intentional or unintentional, which are contrary to
the prevailing laws or regulations committed by the following parties:
(a) The Member’s employing organisation;
(b) Those Charged with Governance of the employing organisation;
(c) Management of the employing organisation; or
(d) Other individuals working for or under the direction of the employing
organisation.
This term is described in paragraph 260.5 A1.
Non-compliance with
laws and regulations
(Members in Public
Practice)
Non-compliance with laws and regulations (“NOCLAR”) comprises acts of
omission or commission, intentional or unintentional, which are contrary to
the prevailing laws or regulations committed by the following parties:
(a) A client;
(b) Those Charged with Governance of a client;
(c) Management of a client; or
(d) Other individuals working for or under the direction of a client.
This term is described in paragraph 360.5 A1.
Office
A distinct sub-group, whether organised on geographical or practice lines.
Predecessor
Accountant
A Member in Public Practice who most recently held an audit appointment
or carried out accounting, tax, consulting or similar Professional Services
for a client, where there is no Existing Accountant.
Professional Activity
An activity requiring accountancy or related skills undertaken by a Member,
including accounting, auditing, tax, management consulting, and financial
management.
[AUST] Professional
Bodies
Chartered Accountants Australia and New Zealand, CPA Australia and the
Institute of Public Accountants.
Professional Services
Professional Activities performed for clients.
[AUST] Professional
Standards
All standards issued by Accounting Professional & Ethical Standards Board
Limited and all professional and ethical requirements of the applicable
Professional Bodies.
Proposed Accountant
A Member in Public Practice who is considering accepting an audit
appointment or an engagement to perform accounting, tax, consulting or
similar Professional Services for a prospective client (or in some cases, an
existing client).
21
Public Interest Entity
(a) A Listed Entity*; or
(b) An entity:
(i) Defined by regulation or legislation as a public interest entity; or
(ii) For which the audit is required by regulation or legislation to be
conducted in compliance with the same Independence
requirements that apply to the audit of Listed Entities. Such
regulation might be promulgated by any relevant regulator,
including an audit regulator.
* Includes a listed entity as defined in Section 9 of the Corporations Act
Reasonable and
informed third party
Reasonable and
informed third party test
Related Entity
2001.
Other entities might also be considered to be Public Interest Entities, as set
out in paragraphs 400.8 to AUST 400.8.1 A1.
The reasonable and informed third party test is a consideration by the
Member about whether the same conclusions would likely be reached by
another party. Such consideration is made from the perspective of a
reasonable and informed third party, who weighs all the relevant facts and
circumstances that the Member knows, or could reasonably be expected to
know, at the time that the conclusions are made. The reasonable and
informed third party does not need to be a Member, but would possess the
relevant knowledge and experience to understand and evaluate the
appropriateness of the Member’s conclusions in an impartial manner.
These terms are described in paragraph 120.5 A4.
An entity that has any of the following relationships with the client:
(a) An entity that has direct or indirect control over the client if the client
is material to such entity;
(b) An entity with a Direct Financial Interest in the client if that entity has
significant influence over the client and the interest in the client is
material to such entity;
(c) An entity over which the client has direct or indirect control;
(d) An entity in which the client, or an entity related to the client under
(c), has a Direct Financial Interest that gives it significant influence
over such entity and the interest is material to the client and its related
entity in (c); and
(e) An entity which is under common control with the client (a “sister
entity”) if the sister entity and the client are both material to the entity
that controls both the client and sister entity.
Review Client
An entity in respect of which a Firm conducts a Review Engagement.
22
Review Engagement
An Assurance Engagement, conducted in accordance with Auditing and
Assurance Standards on Review Engagements or equivalent, in which a
Member in Public Practice expresses a conclusion on whether, on the basis of
the procedures which do not provide all the evidence that would be required in
an audit, anything has come to the Member’s attention that causes the Member
to believe that the Historical Financial Information is not prepared, in all material
respects, in accordance with an applicable financial reporting framework.
Review Team
(a) All members of the Engagement Team for the Review Engagement;
and
(b) All others within a Firm who can directly influence the outcome of the
Review Engagement, including:
Safeguards
Safeguards are actions, individually or in combination, that the Member
takes that effectively reduce threats to compliance with the fundamental
principles to an Acceptable Level.
This term is described in paragraph 120.10 A2.
Senior Member in
Business
Senior Members in Business are Directors, Officers or senior employees
able to exert significant influence over, and make decisions regarding, the
acquisition, deployment and control of the employing organisation’s human,
financial, technological, physical and intangible resources.
This term is described in paragraph 260.11 A1.
Substantial harm
This term is described in paragraphs 260.5 A3 and 360.5 A3.
Special Purpose
Financial Statements
Financial Statements prepared in accordance with a financial reporting
framework designed to meet the financial information needs of specified
users.
Those who recommend the compensation of, or who provide
direct supervisory, management or other oversight of the
Engagement Partner in connection with the performance
of the Review Engagement, including those at all
successively senior levels above the Engagement Partner
through to the individual who is the Firm’s senior or
managing partner (chief executive or equivalent);
Those who provide consultation regarding technical or industry
specific issues, transactions or events for the engagement;
and
Those who provide quality control for the
engagement, including those who perform the Engagement
Quality Control Review for the engagement; and
All those within a Network Firm who can directly influence
the outcome of the Review Engagement.
(i)
(ii)
(iii)
(c)
23
Those Charged with
Governance
The person(s) or organisation(s) (for example, a corporate trustee) with
responsibility for overseeing the strategic direction of the entity and
obligations related to the accountability of the entity. This includes
overseeing the financial reporting process. For some entities in some
jurisdictions, Those Charged with Governance might include management
personnel, for example, executive members of a governance board of a
private or public sector entity, or an owner-manager.
Threats
This term is described in paragraph 120.6 A3 and includes the following
categories:
Self interest
Self-review
Advocacy
Familiarity
Intimidation
120.6 A3(a)
120.6 A3(b)
120.6 A3(c)
120.6 A3(d)
120.6 A3(e)
Time-on period
This term is described in paragraph R540.5.
24
PART 1 COMPLYING WITH THE CODE, FUNDAMENTAL
PRINCIPLES AND CONCEPTUAL FRAMEWORK
Section Page
100 Complying with the Code ....................................................................................................... 25
110 The Fundamental Principles .................................................................................................. 26
Subsection 111 - Integrity....................................................................................................... 27
Subsection 112 - Objectivity ................................................................................................... 27
Subsection 113 - Professional Competence and Due Care .................................................. 27
Subsection 114 - Confidentiality ............................................................................................. 28
Subsection 115 - Professional Behaviour .............................................................................. 29
120 The Conceptual Framework ................................................................................................... 31
25
SECTION 100
COMPLYING WITH THE CODE
General
100.1 A1
100.2 A1
100.2 A2
R100.3
100.3 A1
100.3 A2
A distinguishing mark of the accountancy profession is its acceptance of the responsibility
to act in the public interest. A Member’s responsibility is not exclusively to satisfy the
needs of an individual client or employing organisation. Therefore, the Code
contains requirements and application material to enable Members to meet their
responsibility to act in the public interest.
The requirements in the Code, designated with the letter “Rand denoted in bold-type impose
obligations.
Application material, designated with the letter A”, provides context, explanations,
suggestions for actions or matters to consider, illustrations and other guidance relevant to
a proper understanding of the Code. In particular, the application material is intended to
help a Member to understand how to apply the conceptual framework to a particular set of
circumstances and to understand and comply with a specific requirement. While such
application material does not of itself impose a requirement, consideration of the material
is necessary to the proper application of the requirements of the Code, including application
of the conceptual framework.
A Member shall comply with the Code. There might be circumstances where laws or
regulations preclude a Member from complying with certain parts of the Code. In
such circumstances, those laws and regulations prevail, and the Member shall
comply with all other parts of the Code.
The principle of professional behaviour requires a Member to comply with relevant laws
and regulations. Some jurisdictions might have provisions that differ from or go beyond
those set out in the Code. Members in those jurisdictions need to be aware of those
differences and comply with the more stringent provisions unless prohibited by law or
regulation.
A Member might encounter unusual circumstances in which the Member believes that the
result of applying a specific requirement of the Code would be disproportionate or might
not be in the public interest. In those circumstances, the Member is encouraged to consult
with a professional or regulatory body.
Breaches of the Code
R100.4 Paragraphs R400.80 to R400.89 and R900.50 to R900.55 address a breach of
Independence Standards. A Member who identifies a breach of any other provision
of the Code shall evaluate the significance of the breach and its impact on the
Members ability to comply with the fundamental principles. The Member shall also:
(a) Take whatever actions might be available, as soon as possible, to address the
consequences of the breach satisfactorily; and
(b) Determine whether to report the breach to the relevant parties.
100.4 A1 Relevant parties to whom such a breach might be reported include those who might have
been affected by it, a professional or regulatory body or an oversight authority.
26
SECTION 110
THE FUNDAMENTAL PRINCIPLES
General
110.1 A1 There are five fundamental principles of ethics for Members:
(a) Integrity to be straightforward and honest in all professional and business
relationships.
(b) Objectivity not to compromise professional or business judgements because of
bias, conflict of interest or undue influence of others.
(c) Professional Competence and Due Care to:
(i) Attain and maintain professional knowledge and skill at the level required to
ensure that a client or employing organisation receives competent
Professional Activities, based on current technical and professional standards
and relevant legislation; and
(ii) Act diligently and in accordance with applicable technical and professional
standards.
(d) Confidentiality to respect the confidentiality of information acquired as a result of
professional and business relationships.
(e) Professional Behaviour to comply with relevant laws and regulations and avoid any
conduct that the Member knows or should know might discredit the profession.
R110.2 A Member shall comply with each of the fundamental principles.
110.2 A1 The fundamental principles of ethics establish the standard of behaviour expected of a
Member. The conceptual framework establishes the approach which a Member is required to
apply to assist in complying with those fundamental principles. Subsections 111 to 115 set
out requirements and application material related to each of the fundamental principles.
110.2 A2 A Member might face a situation in which complying with one fundamental principle
conflicts with complying with one or more other fundamental principles. In such a situation,
the Member might consider consulting, on an anonymous basis if necessary, with:
Others within the Firm or employing organisation.
Those Charged with Governance.
A professional body.
A regulatory body.
Legal counsel.
However, such consultation does not relieve the Member from the responsibility to exercise
professional judgement to resolve the conflict or, if necessary, and unless prohibited by law
or regulation, disassociate from the matter creating the conflict.
110.2 A3 The Member is encouraged to document the substance of the issue, the details of any
discussions, the decisions made and the rationale for those decisions.
27
SUBSECTION 111INTEGRITY
R111.1 A Member shall comply with the principle of integrity, which requires a Member to be
straightforward and honest in all professional and business relationships.
111.1 A1 Integrity implies fair dealing and truthfulness.
R111.2 A Member shall not knowingly be associated with reports, returns, communications
or other information where the Member believes that the information:
(a) Contains a materially false or misleading statement;
(b) Contains statements or information provided recklessly; or
(c) Omits or obscures required information where such omission or obscurity
would be misleading.
111.2 A1 If a Member provides a modified report in respect of such a report, return, communication
or other information, the Member is not in breach of paragraph R111.2.
R111.3 When a Member becomes aware of having been associated with information
described in paragraph R111.2, the Member shall take steps to be disassociated from
that information.
SUBSECTION 112 – OBJECTIVITY
R112.1
R112.2
A Member shall comply with the principle of objectivity, which requires a Member
not to compromise professional or business judgement because of bias, conflict of
interest or undue influence of others.
A Member shall not undertake a Professional Activity if a circumstance or
relationship unduly influences the Member’s professional judgement regarding that
activity.
SUBSECTION 113 – PROFESSIONAL COMPETENCE AND DUE CARE
R113.1 A Member shall comply with the principle of professional competence and due care,
which requires a Member to:
(a) Attain and maintain professional knowledge and skill at the level required to
ensure that a client or employing organisation receives competent
Professional Activities, based on current technical and professional
standards and relevant legislation; and
(b) Act diligently and in accordance with applicable technical and professional
standards.
113.1 A1 Serving clients and employing organisations with professional competence requires the
exercise of sound judgement in applying professional knowledge and skill when
undertaking Professional Activities.
113.1 A2 Maintaining professional competence requires a continuing awareness and an
understanding of relevant technical, professional and business developments. Continuing
professional development enables a Member to develop and maintain the capabilities to
perform competently within the professional environment.
28
113.1 A3
R113.2
R113.3
Diligence encompasses the responsibility to act in accordance with the requirements of an
assignment, carefully, thoroughly and on a timely basis.
In complying with the principle of professional competence and due care, a Member
shall take reasonable steps to ensure that those working in a professional capacity
under the Member’s authority have appropriate training and supervision.
Where appropriate, a Member shall make clients, the employing organisation, or
other users of the Member’s Professional Services or Activities, aware of the
limitations inherent in the Professional Services or Activities.
SUBSECTION 114 – CONFIDENTIALITY
R114.1 A Member shall comply with the principle of confidentiality, which requires a Member
to respect the confidentiality of information acquired as a result of professional and
business relationships. A Member shall:
(a) Be alert to the possibility of inadvertent disclosure, including in a social
environment, and particularly to a close business associate or an Immediate
or a Close Family member;
(b) Maintain confidentiality of information within the Firm or employing
organisation;
(c) Maintain confidentiality of information disclosed by a prospective client or
employing organisation;
(d) Not disclose confidential information acquired as a result of professional and
business relationships outside the Firm or employing organisation without
proper and specific authority, unless there is a legal or professional duty or
right to disclose;
(e) Not use confidential information acquired as a result of professional and
business relationships for the personal advantage of the Member or for the
advantage of a third party;
(f) Not use or disclose any confidential information, either acquired or received
as a result of a professional or business relationship, after that relationship
has ended; and
(g) Take reasonable steps to ensure that personnel under the Member’s control,
and individuals from whom advice and assistance are obtained, respect the
Member’s duty of confidentiality.
114.1 A1 Confidentiality serves the public interest because it facilitates the free flow of information
from the Member’s client or employing organisation to the Member in the knowledge that
the information will not be disclosed to a third party. Nevertheless, the following are
circumstances where Members are or might be required to disclose confidential information
or when such disclosure might be appropriate:
(a) Disclosure is required by law, for example:
(i) Production of documents or other provision of evidence in the course of legal
proceedings; or
(ii) Disclosure to the appropriate public authorities of infringements of the law that
come to light;
(b) Disclosure is permitted by law and is authorised by the client or the employing
organisation; and
29
(c) There is a professional duty or right to disclose, when not prohibited by law:
(i) To comply with the quality review of a Professional Body;
(ii) To respond to an inquiry or investigation by a professional or regulatory body;
(iii) To protect the professional interests of a Member in legal proceedings; or
(iv) To comply with technical and professional standards, including ethics
requirements.
AUST 114.1 A1.1
114.1 A2
The circumstances described in paragraph 114.1 A1 do not take into account Australian
legal and regulatory requirements. A Member considering disclosing confidential
information about a client or employer without their consent is advised to first obtain
legal advice.
In deciding whether to disclose confidential information, factors to consider, depending on
the circumstances, include:
Whether the interests of any parties, including third parties whose interests might be
affected, could be harmed if the client or employing organisation consents to the
disclosure of information by the Member.
Whether all the relevant information is known and substantiated, to the extent
practicable. Factors affecting the decision to disclose include:
o Unsubstantiated facts.
o Incomplete information.
o Unsubstantiated conclusions.
The proposed type of communication, and to whom it is addressed.
Whether the parties to whom the communication is addressed are appropriate
recipients.
R114.2 A Member shall continue to comply with the principle of confidentiality even after the
end of the relationship between the Member and a client or employing organisation.
When changing employment or acquiring a new client, the Member is entitled to use
prior experience but shall not use or disclose any confidential information acquired
or received as a result of a professional or business relationship.
SUBSECTION 115 – PROFESSIONAL BEHAVIOUR
R115.1 A Member shall comply with the principle of professional behaviour, which requires
a Member to comply with relevant laws and regulations and avoid any conduct that
the Member knows or should know might discredit the profession. A Member shall
not knowingly engage in any business, occupation or activity that impairs or might
impair the integrity, objectivity or good reputation of the profession, and as a result
would be incompatible with the fundamental principles.
115.1 A1 Conduct that might discredit the profession includes conduct that a reasonable and
informed third party would be likely to conclude adversely affects the good reputation of
the profession.
30
R115.2 When undertaking marketing or promotional activities, a Member shall not bring the
profession into disrepute. A Member shall be honest and truthful and shall not make:
(a) Exaggerated claims for the services offered by, or the qualifications or
experience of, the Member; or
(b) Disparaging references or unsubstantiated comparisons to the work of
others.
115.2 A1 If a Member is in doubt about whether a form of Advertising or marketing is appropriate,
the Member is encouraged to consult with the relevant Professional Body.
31
SECTION 120
THE CONCEPTUAL FRAMEWORK
Introduction
120.1 The circumstances in which Members operate might create threats to compliance with the
fundamental principles. Section 120 sets out requirements and application material,
including a conceptual framework, to assist Members in complying with the fundamental
principles and meeting their responsibility to act in the public interest. Such requirements
and application material accommodate the wide range of facts and circumstances,
including the various Professional Activities, interests and relationships, that create threats
to compliance with the fundamental principles. In addition, they deter Members from
concluding that a situation is permitted solely because that situation is not specifically
prohibited by the Code.
120.2 The conceptual framework specifies an approach for a Member to:
(a) Identify threats to compliance with the fundamental principles;
(b) Evaluate the threats identified; and
(c) Address the threats by eliminating or reducing them to an Acceptable Level.
Requirements and Application Material
General
R120.3 The Member shall apply the conceptual framework to identify, evaluate and address
threats to compliance with the fundamental principles set out in Section 110.
120.3 A1 Additional requirements and application material that are relevant to the application of the
conceptual framework are set out in:
(a) Part 2 Members in Business (including employment relationships of Members in
Public Practice);
(b) Part 3 – Members in Public Practice; and
(c) Independence Standards, as follows:
(i) Part 4AIndependence for Audit and Review Engagements; and
(ii) Part 4B Independence for Assurance Engagements Other than Audit and
Review Engagements.
R120.4
R120.5
When dealing with an ethics issue, the Member shall consider the context in which
the issue has arisen or might arise. Where an individual who is a Member in Public
Practice is performing Professional Activities pursuant to the Member’s relationship
with the Firm, whether as a contractor, employee or owner, the individual shall
comply with the provisions in Part 2 that apply to these circumstances.
When applying the conceptual framework, the Member shall:
(a) Exercise professional judgement;
(b) Remain alert for new information and to changes in facts and circumstances;
and
32
(c) Use the reasonable and informed third party test described in paragraph 120.5
A4.
Exercise of Professional Judgement
120.5 A1 Professional judgement involves the application of relevant training, professional
knowledge, skill and experience commensurate with the facts and circumstances, including
the nature and scope of the particular Professional Activities, and the interests and
relationships involved. In relation to undertaking Professional Activities, the exercise of
professional judgement is required when the Member applies the conceptual framework in
order to make informed decisions about the courses of actions available, and to determine
whether such decisions are appropriate in the circumstances.
120.5 A2 An understanding of known facts and circumstances is a prerequisite to the proper
application of the conceptual framework. Determining the actions necessary to obtain this
understanding and coming to a conclusion about whether the fundamental principles have
been complied with also require the exercise of professional judgement.
120.5 A3 In exercising professional judgement to obtain this understanding, the Member might
consider, among other matters, whether:
There is reason to be concerned that potentially relevant information might be
missing from the facts and circumstances known to the Member.
There is an inconsistency between the known facts and circumstances and the
Member’s expectations.
The Member’s expertise and experience are sufficient to reach a conclusion.
There is a need to consult with others with relevant expertise or experience.
The information provides a reasonable basis on which to reach a conclusion.
The Member’s own preconception or bias might be affecting the Member’s exercise
of professional judgement.
There might be other reasonable conclusions that could be reached from the
available information.
Reasonable and Informed Third Party
120.5 A4 The reasonable and informed third party test is a consideration by the Member about
whether the same conclusions would likely be reached by another party. Such
consideration is made from the perspective of a reasonable and informed third party, who
weighs all the relevant facts and circumstances that the Member knows, or could
reasonably be expected to know, at the time the conclusions are made. The reasonable
and informed third party does not need to be a Member, but would possess the relevant
knowledge and experience to understand and evaluate the appropriateness of the
Member’s conclusions in an impartial manner.
Identifying Threats
R120.6
120.6 A1
The Member shall identify threats to compliance with the fundamental principles.
An understanding of the facts and circumstances, including any Professional Activities,
interests and relationships that might compromise compliance with the fundamental
principles, is a prerequisite to the Member’s identification of threats to such compliance.
The existence of certain conditions, policies and procedures established by the profession,
33
legislation, regulation, the Firm, or the employing organisation that can enhance the
Member acting ethically might also help identify threats to compliance with the fundamental
principles. Paragraph 120.8 A2 includes general examples of such conditions, policies and
procedures which are also factors that are relevant in evaluating the level of threats.
120.6 A2 Threats to compliance with the fundamental principles might be created by a broad range
of facts and circumstances. It is not possible to define every situation that creates threats.
In addition, the nature of engagements and work assignments might differ and,
consequently, different types of threats might be created.
120.6 A3 Threats to compliance with the fundamental principles fall into one or more of the following
categories:
(a) Self-interest threat the threat that a financial or other interest will inappropriately
influence a Member’s judgement or behaviour;
(b) Self-review threat the threat that a Member will not appropriately evaluate the
results of a previous judgement made, or an activity performed by the Member, or
by another individual within the Member’s Firm or employing organisation, on which
the Member will rely when forming a judgement as part of performing a current
activity;
(c) Advocacy threat the threat that a Member will promote a client’s or employing
organisation’s position to the point that the Member’s objectivity is compromised;
(d) Familiarity threat the threat that due to a long or close relationship with a client, or
employing organisation, a Member will be too sympathetic to their interests or too
accepting of their work; and
(e) Intimidation threat the threat that a Member will be deterred from acting objectively
because of actual or perceived pressures, including attempts to exercise undue
influence over the Member.
120.6 A4 A circumstance might create more than one threat, and a threat might affect compliance
with more than one fundamental principle.
Evaluating Threats
R120.7 When the Member identifies a threat to compliance with the fundamental principles,
the Member shall evaluate whether such a threat is at an Acceptable Level.
Acceptable Level
120.7 A1 An Acceptable Level is a level at which a Member using the reasonable and informed third
party test would likely conclude that the Member complies with the fundamental principles.
Factors Relevant in Evaluating the Level of Threats
120.8 A1
120.8 A2
The consideration of qualitative as well as quantitative factors is relevant in the Member’s
evaluation of threats, as is the combined effect of multiple threats, if applicable.
The existence of conditions, policies and procedures described in paragraph 120.6 A1
might also be factors that are relevant in evaluating the level of threats to compliance with
fundamental principles. Examples of such conditions, policies and procedures include:
Corporate governance requirements.
Educational, training and experience requirements for the profession.
34
Effective complaint systems which enable the Member and the general public to draw
attention to unethical behaviour.
An explicitly stated duty to report breaches of ethics requirements.
Professional or regulatory monitoring and disciplinary procedures.
Consideration of New Information or Changes in Facts and Circumstances
R120.9 If the Member becomes aware of new information or changes in facts and
circumstances that might impact whether a threat has been eliminated or reduced
to an Acceptable Level, the Member shall re-evaluate and address that threat
accordingly.
120.9 A1 Remaining alert throughout the Professional Activity assists the Member in determining
whether new information has emerged or changes in facts and circumstances have
occurred that:
(a) Impact the level of a threat; or
(b) Affect the Member’s conclusions about whether safeguards applied continue to be
appropriate to address identified threats.
120.9 A2 If new information results in the identification of a new threat, the Member is required to
evaluate and, as appropriate, address this threat. (Ref: Paras. R120.7 and R120.10).
Addressing Threats
R120.10 If the Member determines that the identified threats to compliance with the
fundamental principles are not at an Acceptable Level, the Member shall address the
threats by eliminating them or reducing them to an Acceptable Level. The Member
shall do so by:
(a) Eliminating the circumstances, including interests or relationships, that are
creating the threats;
(b) Applying safeguards, where available and capable of being applied, to reduce
the threats to an Acceptable Level; or
(c) Declining or ending the specific Professional Activity.
Actions to Eliminate Threats
120.10 A1 Depending on the facts and circumstances, a threat might be addressed by eliminating the
circumstance creating the threat. However, there are some situations in which threats can
only be addressed by declining or ending the specific Professional Activity. This is because
the circumstances that created the threats cannot be eliminated and safeguards are not
capable of being applied to reduce the threat to an Acceptable Level.
Safeguards
120.10 A2 Safeguards are actions, individually or in combination, that the Member takes that
effectively reduce threats to compliance with the fundamental principles to an Acceptable
Level.
35
Consideration of Significant Judgements Made and Overall Conclusions Reached
R120.11 The Member shall form an overall conclusion about whether the actions that the
Member takes, or intends to take, to address the threats created will eliminate those
threats or reduce them to an Acceptable Level. In forming the overall conclusion, the
Member shall:
(a) Review any significant judgements made or conclusions reached; and
(b) Use the reasonable and informed third party test.
Considerations for Audits, Reviews and Other Assurance Engagements
Independence
120.12 A1 Members in Public Practice are required by Independence Standards to be independent
when performing Audits, Reviews, or other assurance engagements. Independence
is linked to the fundamental principles of objectivity and integrity. It comprises:
(a) Independence of mind the state of mind that permits the expression of a conclusion
without being affected by influences that compromise professional judgement,
thereby allowing an individual to act with integrity, and exercise objectivity and
professional scepticism.
(b) Independence in appearance the avoidance of facts and circumstances that are so
significant that a reasonable and informed third party would be likely to conclude that
a Firm’s or an Audit or Assurance Team member’s integrity, objectivity or
professional scepticism has been compromised.
Independence Standards set out requirements and application material on how to apply
the conceptual framework to maintain Independence when performing Audits, Reviews or
other assurance engagements.
2
Members and Firms are required to comply with these
standards in order to be independent when conducting such engagements. The conceptual
framework to identify, evaluate and address threats to compliance with the fundamental
principles applies in the same way to compliance with Independence requirements. The
categories of threats to compliance with the fundamental principles described in paragraph
120.6 A3 are also the categories of threats to compliance with Independence requirements.
Under auditing, review and other assurance standards, including those issued by the
AUASB, Members in Public Practice are required to exercise professional
scepticism when planning and performing Audits, Reviews and other assurance
engagements. Professional scepticism and the fundamental principles that are
described in Section 110 are inter-related concepts.
2
The Corporations Act 2001 contains independence obligations that Members in Public Practice must also
comply with when Audit and Review Engagements are performed in accordance with the Act.
120.12 A2
120.13 A1
Professional Scepticism
36
120.13 A2 In an audit of Financial Statements, compliance with the fundamental principles,
individually and collectively, supports the exercise of professional scepticism, as shown in
the following examples:
Integrity requires the Member in Public Practice to be straightforward and honest.
For example, the Member complies with the principle of integrity by:
(a) Being straightforward and honest when raising concerns about a position
taken by a client; and
(b) Pursuing inquiries about inconsistent information and seeking further audit
evidence to address concerns about statements that might be materially false
or misleading in order to make informed decisions about the appropriate
course of action in the circumstances.
In doing so, the Member demonstrates the critical assessment of audit evidence that
contributes to the exercise of professional scepticism.
Objectivity requires the Member in Public Practice not to compromise professional or
business judgement because of bias, conflict of interest or the undue influence of
others. For example, the Member complies with the principle of objectivity by:
(a) Recognising circumstances or relationships such as familiarity with the client,
that might compromise the Member’s professional or business judgement; and
(b) Considering the impact of such circumstances and relationships on the
Member’s judgement when evaluating the sufficiency and appropriateness of
audit evidence related to a matter material to the client's Financial Statements.
In doing so, the Member behaves in a manner that contributes to the exercise of
professional scepticism.
Professional competence and due care requires the Member in Public Practice to
have professional knowledge and skill at the level required to ensure the provision of
competent Professional Service, and to act diligently in accordance with applicable
standards, laws and regulations. For example, the Member complies with the
principle of professional competence and due care by:
(a) Applying knowledge that is relevant to a particular client’s industry and
business activities in order to properly identify risks of material misstatement;
(b) Designing and performing appropriate audit procedures; and
(c) Applying relevant knowledge when critically assessing whether audit evidence
is sufficient and appropriate in the circumstances.
In doing so, the Member behaves in a manner that contributes to the exercise of
professional scepticism.
37
PART 2 MEMBERS IN BUSINESS (INCLUDING EMPLOYMENT
RELATIONSHIPS OF MEMBERS IN PUBLIC PRACTICE)
Section Page
200 Applying the Conceptual Framework Members in Business ............................................... 38
210 Conflicts of Interest ................................................................................................................. 42
220 Preparation and Presentation of Information ......................................................................... 45
230 Acting with Sufficient Expertise .............................................................................................. 49
240 Financial Interests, Compensation and Incentives Linked to
Financial Reporting and Decision Making .............................................................................. 50
250 Inducements, Including Gifts and Hospitality ......................................................................... 52
260 Responding to Non-Compliance with Laws and Regulations ................................................ 57
270 Pressure to Breach the Fundamental Principles .................................................................... 65
38
SECTION 200
APPLYING THE CONCEPTUAL FRAMEWORK – MEMBERS IN BUSINESS
Introduction
200.1
200.2
200.3
200.4
This Part of the Code sets out requirements and application material for Members in
Business when applying the conceptual framework set out in Section 120. It does not
describe all of the facts and circumstances, including Professional Activities, interests and
relationships, that could be encountered by Members in Business, which create or might
create threats to compliance with the fundamental principles. Therefore, the conceptual
framework requires Members in Business to be alert for such facts and circumstances.
Investors, creditors, employing organisations and other sectors of the business community,
as well as governments and the general public, might rely on the work of Members in
Business. Members in Business might be solely or jointly responsible for the preparation
and reporting of financial and other information, on which both their employing
organisations and third parties might rely. They might also be responsible for providing
effective financial management and competent advice on a variety of business-related
matters.
A Member in Business might be an employee, contractor, partner, Director (executive or
non-executive), owner-manager, or volunteer of an employing organisation. The legal form
of the relationship of the Member with the employing organisation has no bearing on the
ethical responsibilities placed on the Member.
In this Part, the term Memberrefers to:
(a) A Member in Business; and
(b) An individual who is a Member in Public Practice when performing Professional
Activities pursuant to the Member’s relationship with the Member’s Firm, whether as
a contractor, employee or owner. More information on when Part 2 is applicable to
Members in Public Practice is set out in paragraphs R120.4, R300.5 and 300.5 A1.
Requirements and Application Material
General
R200.5
200.5 A1
200.5 A2
A Member shall comply with the fundamental principles set out in Section 110 and
apply the conceptual framework set out in Section 120 to identify, evaluate and
address threats to compliance with the fundamental principles.
A Member has a responsibility to further the legitimate objectives of the Member’s
employing organisation. The Code does not seek to hinder Members from fulfilling that
responsibility, but addresses circumstances in which compliance with the fundamental
principles might be compromised.
Members may promote the position of the employing organisation when furthering the
legitimate goals and objectives of their employing organisation, provided that any
statements made are neither false nor misleading. Such actions usually would not create
an advocacy threat.
39
200.5 A3 The more senior the position of a Member, the greater will be the ability and opportunity to
access information, and to influence policies, decisions made and actions taken by others
involved with the employing organisation. To the extent that they are able to do so, taking
into account their position and seniority in the organisation, Members are expected to
encourage and promote an ethics-based culture in the organisation. Examples of actions
that might be taken include the introduction, implementation and oversight of:
Ethics education and training programs.
Ethics and whistleblowing policies.
3
Policies and procedures designed to prevent non-compliance with laws and
regulations (NOCLAR).
Identifying Threats
200.6 A1 Threats to compliance with the fundamental principles might be created by a broad range
of facts and circumstances. The categories of threats are described in paragraph 120.6 A3.
The following are examples of facts and circumstances within each of those categories that
might create threats for a Member when undertaking a Professional Activity:
(a) Self-interest Threats:
A Member holding a Financial Interest in, or receiving a loan or guarantee
from the employing organisation.
A Member participating in incentive compensation arrangements offered by
the employing organisation.
A Member having access to corporate assets for personal use.
A Member being offered a gift or special treatment from a supplier of the
employing organisation.
(b) Self-review Threats:
A Member determining the appropriate accounting treatment for a business
combination after performing the feasibility study supporting the purchase
decision.
(c) Advocacy Threats:
A Member having the opportunity to manipulate information in a prospectus
in order to obtain favourable financing.
(d) Familiarity Threats:
A Member being responsible for the financial reporting of the employing
organisation when an Immediate or Close Family member employed by the
organisation makes decisions that affect the financial reporting of the
organisation.
A Member having a long association with individuals influencing business
decisions.
3
In Australia, whistleblower protection is addressed in the Corporations Act 2001 (for the private sector) and in
other legislation in place federally and in states and territories (for the public sector). In 2017, the Australian
government released draft federal legislation to strengthen protection for whistleblowers in the private sector.
As at the Code's publication date, the draft legislation is under consideration by the Parliament of Australia.
40
(e) Intimidation Threats:
A Member or Immediate or Close Family member facing the threat of
dismissal or replacement over a disagreement about:
o The application of an accounting principle.
o The way in which financial information is to be reported.
An individual attempting to influence the decision making process of the
Member, for example with regard to the awarding of contracts or the
application of an accounting principle.
Evaluating Threats
200.7 A1
200.7 A2
200.7 A3
The conditions, policies and procedures described in paragraphs 120.6 A1 and 120.8 A2
might impact the evaluation of whether a threat to compliance with the fundamental
principles is at an Acceptable Level.
The Member’s evaluation of the level of a threat is also impacted by the nature and scope
of the Professional Activity.
The Member’s evaluation of the level of a threat might be impacted by the work
environment within the employing organisation and its operating environment. For
example:
Leadership that stresses the importance of ethical behaviour and the expectation
that employees will act in an ethical manner.
Policies and procedures to empower and encourage employees to communicate
ethics issues that concern them to senior levels of management without fear of
retribution.
Policies and procedures to implement and monitor the quality of employee
performance.
Systems of corporate oversight or other oversight structures and strong internal
controls.
Recruitment procedures emphasising the importance of employing high calibre
competent personnel.
Timely communication of policies and procedures, including any changes to them,
to all employees, and appropriate training and education on such policies and
procedures.
Ethics and code of conduct policies.
200.7 A4 Members might consider obtaining legal advice where they believe that unethical behaviour
or actions by others have occurred, or will continue to occur, within the employing
organisation.
Addressing Threats
200.8 A1 Sections 210 to 270 describe certain threats that might arise during the course of
performing Professional Activities and include examples of actions that might address such
threats.
41
200.8 A2 In extreme situations, if the circumstances that created the threats cannot be eliminated
and safeguards are not available or capable of being applied to reduce the threat to an
Acceptable Level, it might be appropriate for a Member to resign from the employing
organisation.
Communicating with Those Charged with Governance
R200.9 When communicating with Those Charged with Governance in accordance with the
Code, a Member shall determine the appropriate individual(s) within the employing
organisation’s governance structure with whom to communicate. If the Member
communicates with a subgroup of Those Charged with Governance, the Member
shall determine whether communication with all of Those Charged with Governance
is also necessary so that they are adequately informed.
200.9 A1 In determining with whom to communicate, a Member might consider:
(a) The nature and importance of the circumstances; and
(b) The matter to be communicated.
200.9 A2 Examples of a subgroup of Those Charged with Governance include an audit committee
or an individual member of Those Charged with Governance.
R200.10 If a Member communicates with individuals who have management responsibilities
as well as governance responsibilities, the Member shall be satisfied that
communication with those individuals adequately informs all of those in a
governance role with whom the Member would otherwise communicate.
200.10 A1 In some circumstances, all of Those Charged with Governance are involved in managing
the employing organisation, for example, a small business where a single owner manages
the organisation and no one else has a governance role. In these cases, if matters are
communicated with individual(s) with management responsibilities, and those individual(s)
also have governance responsibilities, the Member has satisfied the requirement to
communicate with Those Charged with Governance.
42
SECTION 210
CONFLICTS OF INTEREST
Introduction
210.1 Members are required to comply with the fundamental principles and apply the conceptual
framework set out in Section 120 to identify, evaluate and address threats.
210.2 A conflict of interest creates threats to compliance with the principle of objectivity and might
create threats to compliance with the other fundamental principles. Such threats might be
created when:
(a) A Member undertakes a Professional Activity related to a particular matter for two or
more parties whose interests with respect to that matter are in conflict; or
(b) The interest of a Member with respect to a particular matter and the interests of a
party for whom the Member undertakes a Professional Activity related to that matter
are in conflict.
A party might include an employing organisation, a vendor, a customer, a lender, a
shareholder, or another party.
210.3 This section sets out specific requirements and application material relevant to applying
the conceptual framework to conflicts of interest.
Requirements and Application Material
General
R210.4 A Member shall not allow a conflict of interest to compromise professional or
business judgement.
210.4 A1 Examples of circumstances that might create a conflict of interest include:
Serving in a management or governance position for two employing organisations
and acquiring confidential information from one organisation that might be used by
the Member to the advantage or disadvantage of the other organisation.
Undertaking a Professional Activity for each of two parties in a partnership, where
both parties are employing the Member to assist them to dissolve their partnership.
Preparing financial information for certain members of management of the Member’s
employing organisation who are seeking to undertake a management buy-out.
Being responsible for selecting a vendor for the employing organisation when an
Immediate Family member of the Member might benefit financially from the
transaction.
Serving in a governance capacity in an employing organisation that is approving
certain investments for the company where one of those investments will increase
the value of the investment portfolio of the Member or an Immediate Family member.
43
Conflict Identification
R210.5 A Member shall take reasonable steps to identify circumstances that might create a
conflict of interest, and therefore a threat to compliance with one or more of the
fundamental principles. Such steps shall include identifying:
(a) The nature of the relevant interests and relationships between the parties
involved; and
(b) The activity and its implication for relevant parties.
R210.6 A Member shall remain alert to changes over time in the nature of the activities,
interests and relationships that might create a conflict of interest while performing
a Professional Activity.
Threats Created by Conflicts of Interest
210.7 A1
210.7 A2
210.7 A3
In general, the more direct the connection between the Professional Activity and the matter
on which the parties’ interests conflict, the more likely the level of the threat is not at an
Acceptable Level.
An example of an action that might eliminate threats created by conflicts of interest is
withdrawing from the decision making process related to the matter giving rise to the
conflict of interest.
Examples of actions that might be safeguards to address threats created by conflicts of
interest include:
Restructuring or segregating certain responsibilities and duties.
Obtaining appropriate oversight, for example, acting under the supervision of an
executive or non-executive Director.
Disclosure and Consent
General
210.8 A1 It is generally necessary to:
(a) Disclose the nature of the conflict of interest and how any threats created were
addressed to the relevant parties, including to the appropriate levels within the
employing organisation affected by a conflict; and
(b) Obtain consent from the relevant parties for the Member to undertake the
Professional Activity when safeguards are applied to address the threat.
210.8 A2 Consent might be implied by a party’s conduct in circumstances where the Member has
sufficient evidence to conclude that the parties know the circumstances at the outset and
have accepted the conflict of interest if they do not raise an objection to the existence of
the conflict.
210.8 A3 If such disclosure or consent is not in writing, the Member is encouraged to document:
(a) The nature of the circumstances giving rise to the conflict of interest;
(b) The safeguards applied to address the threats when applicable; and
(c) The consent obtained.
44
Other Considerations
210.9 A1 When addressing a conflict of interest, the Member is encouraged to seek guidance from
within the employing organisation or from others, such as a professional body, legal
counsel or another Member. When making such disclosures or sharing information within
the employing organisation and seeking guidance of third parties, the principle of
confidentiality applies.
45
SECTION 220
PREPARATION AND PRESENTATION OF INFORMATION
Introduction
220.1 Members are required to comply with the fundamental principles and apply the conceptual
framework set out in Section 120 to identify, evaluate and address threats.
220.2 Preparing or presenting information might create a self-interest, intimidation or other threats
to compliance with one or more of the fundamental principles. This section sets out specific
requirements and application material relevant to applying the conceptual framework in
such circumstances.
Requirements and Application Material
General
220.3 A1 Members at all levels in an employing organisation are involved in the preparation or
presentation of information both within and outside the organisation.
220.3 A2 Stakeholders to whom, or for whom, such information is prepared or presented, include:
Management and Those Charged with Governance.
Investors and lenders or other creditors.
Regulatory bodies.
This information might assist stakeholders in understanding and evaluating aspects of the
employing organisation’s state of affairs and in making decisions concerning the
organisation. Information can include financial and non-financial information that might be
made public or used for internal purposes.
Examples include:
Operating and performance reports.
Decision support analyses.
Budgets and forecasts.
Information provided to the internal and external auditors.
Risk analyses.
General and Special Purpose Financial Statements.
Tax returns.
Reports filed with regulatory bodies for legal and compliance purposes.
220.3 A3 For the purposes of this section, preparing or presenting information includes recording,
maintaining and approving information.
46
R220.4 When preparing or presenting information, a Member shall:
(a) Prepare or present the information in accordance with a relevant reporting
framework, where applicable;
(b) Prepare or present the information in a manner that is intended neither to
mislead, nor to influence contractual or regulatory outcomes inappropriately;
(c) Exercise professional judgement to:
(i) Represent the facts accurately and completely in all material respects;
(ii) Describe clearly the true nature of business transactions or activities;
and
(iii) Classify and record information in a timely and proper manner; and
(d) Not omit anything with the intention of rendering the information misleading
or of influencing contractual or regulatory outcomes inappropriately.
220.4 A1 An example of influencing a contractual or regulatory outcome inappropriately is using an
unrealistic estimate with the intention of avoiding violation of a contractual requirement such
as a debt covenant or of a regulatory requirement such as a capital requirement for a
financial institution.
Use of Discretion in Preparing or Presenting Information
R220.5 Preparing or presenting information might require the exercise of discretion in
making professional judgements. The Member shall not exercise such discretion
with the intention of misleading others or influencing contractual or regulatory
outcomes inappropriately.
220.5 A1 Examples of ways in which discretion might be misused to achieve inappropriate outcomes
include:
Determining estimates, for example, determining fair value estimates in order to
misrepresent profit or loss.
Selecting or changing an accounting policy or method among two or more
alternatives permitted under the applicable financial reporting framework, for
example, selecting a policy for accounting for long-term contracts in order to
misrepresent profit or loss.
Determining the timing of transactions, for example, timing the sale of an asset near
the end of the fiscal year in order to mislead.
Determining the structuring of transactions, for example, structuring financing
transactions in order to misrepresent assets and liabilities or classification of cash
flows.
Selecting disclosures, for example, omitting or obscuring information relating to
financial or operating risk in order to mislead.
R220.6 When performing Professional Activities, especially those that do not require
compliance with a relevant reporting framework, the Member shall exercise
professional judgement to identify and consider:
(a) The purpose for which the information is to be used;
(b) The context within which it is given; and
(c) The audience to whom it is addressed.
47
220.6 A1 For example, when preparing or presenting pro forma reports, budgets or forecasts, the
inclusion of relevant estimates, approximations and assumptions, where appropriate,
would enable those who might rely on such information to form their own judgements.
220.6 A2 The Member might also consider clarifying the intended audience, context and purpose of
the information to be presented.
Relying on the Work of Others
R220.7 A Member who intends to rely on the work of others, either internal or external to the
employing organisation, shall exercise professional judgement to determine what
steps to take, if any, in order to fulfil the responsibilities set out in paragraph R220.4.
220.7 A1 Factors to consider in determining whether reliance on others is reasonable include:
The reputation and expertise of, and resources available to, the other individual or
organisation.
Whether the other individual is subject to applicable professional and ethics
standards.
Such information might be gained from prior association with, or from consulting others
about, the other individual or organisation.
Addressing Information that Is or Might be Misleading
R220.8 When the Member knows or has reason to believe that the information with which
the Member is associated is misleading, the Member shall take appropriate actions
to seek to resolve the matter.
220.8 A1 Actions that might be appropriate include:
Discussing concerns that the information is misleading with the Member’s superior
and/or the appropriate level(s) of management within the Member’s employing
organisation or Those Charged with Governance, and requesting such individuals to
take appropriate action to resolve the matter. Such action might include:
o Having the information corrected.
o If the information has already been disclosed to the intended users, informing
them of the correct information.
Consulting the policies and procedures of the employing organisation (for example,
an ethics or whistleblowing policy) regarding how to address such matters internally.
220.8 A2 The Member might determine that the employing organisation has not taken appropriate
action. If the Member continues to have reason to believe that the information is misleading,
the following further actions might be appropriate provided that the Member remains alert
to the principle of confidentiality:
Consulting with:
o A relevant Professional Body.
o The internal or external auditor of the employing organisation.
o Legal counsel.
48
Determining whether any requirements exist to communicate to:
o Third parties, including users of the information.
o Regulatory and oversight authorities.
AUST R220.8.1 Where a Member referred to in paragraph R220.4 is not satisfied that the Financial
Statements of an employing organisation are presented in accordance with
applicable Australian Accounting Standards, the Member shall:
(a) in all cases, notify Those Charged with Governance and document the
communication; and
(b) qualify any declarations given by the Member in compliance with legislative
and regulatory requirements or the organisation's reporting requirements.
R220.9 If after exhausting all feasible options, the Member determines that appropriate
action has not been taken and there is reason to believe that the information is still
misleading, the Member shall refuse to be or to remain associated with the
information.
220.9 A1 In such circumstances, it might be appropriate for a Member to resign from the employing
organisation.
Documentation
220.10 A1 The Member is encouraged to document:
The facts.
The accounting principles or other relevant professional standards involved.
The communications and parties with whom matters were discussed.
The courses of action considered.
How the Member attempted to address the matter(s).
Other Considerations
220.11 A1 Where threats to compliance with the fundamental principles relating to the preparation or
presentation of information arise from a Financial Interest, including compensation and
incentives linked to financial reporting and decision making, the requirements and
application material set out in Section 240 apply.
220.11 A2 Where the misleading information might involve non-compliance with laws and regulations
(NOCLAR), the requirements and application material set out in Section 260 apply.
220.11 A3 Where threats to compliance with the fundamental principles relating to the preparation or
presentation of information arise from pressure, the requirements and application material
set out in Section 270 apply.
49
SECTION 230
ACTING WITH SUFFICIENT EXPERTISE
Introduction
230.1 Members are required to comply with the fundamental principles and apply the conceptual
framework set out in Section 120 to identify, evaluate and address threats.
230.2 Acting without sufficient expertise creates a self-interest threat to compliance with the
principle of professional competence and due care. This section sets out specific
requirements and application material relevant to applying the conceptual framework in
such circumstances.
Requirements and Application Material
General
R230.3 A Member shall not intentionally mislead an employing organisation as to the level
of expertise or experience possessed.
230.3 A1 The principle of professional competence and due care requires that a Member only
undertake significant tasks for which the Member has, or can obtain, sufficient training or
experience.
230.3 A2 A self-interest threat to compliance with the principle of professional competence and due
care might be created if a Member has:
Insufficient time for performing or completing the relevant duties.
Incomplete, restricted or otherwise inadequate information for performing the duties.
Insufficient experience, training and/or education.
Inadequate resources for the performance of the duties.
230.3 A3 Factors that are relevant in evaluating the level of such a threat include:
The extent to which the Member is working with others.
The relative seniority of the Member in the business.
The level of supervision and review applied to the work.
230.3 A4 Examples of actions that might be safeguards to address such a self-interest threat include:
Obtaining assistance or training from someone with the necessary expertise.
Ensuring that there is adequate time available for performing the relevant duties.
R230.4 If a threat to compliance with the principle of professional competence and due care
cannot be addressed, a Member shall determine whether to decline to perform the
duties in question. If the Member determines that declining is appropriate, the
Member shall communicate the reasons.
Other Considerations
230.5 A1 The requirements and application material in Section 270 apply when a Member is
pressured to act in a manner that might lead to a breach of the principle of professional
competence and due care.
50
SECTION 240
FINANCIAL INTERESTS, COMPENSATION AND INCENTIVES LINKED TO
FINANCIAL REPORTING AND DECISION MAKING
Introduction
240.1 Members are required to comply with the fundamental principles and apply the conceptual
framework set out in Section 120 to identify, evaluate and address threats.
240.2 Having a Financial Interest, or knowing of a Financial Interest held by an Immediate or
Close Family member might create a self-interest threat to compliance with the principles
of objectivity or confidentiality. This section sets out specific requirements and application
material relevant to applying the conceptual framework in such circumstances.
Requirements and Application Material
General
R240.3 A Member shall not manipulate information or use confidential information for
personal gain or for the financial gain of others.
240.3 A1 Members might have Financial Interests or might know of Financial Interests of Immediate
or Close Family members that, in certain circumstances, might create threats to compliance
with the fundamental principles. Financial Interests include those arising from
compensation or incentive arrangements linked to financial reporting and decision making.
240.3 A2 Examples of circumstances that might create a self-interest threat include situations in
which the Member or an Immediate or Close Family member:
Has a motive and opportunity to manipulate price-sensitive information in order to
gain financially.
Holds a Direct or Indirect Financial Interest in the employing organisation and the
value of that Financial Interest might be directly affected by decisions made by the
Member.
Is eligible for a profit-related bonus and the value of that bonus might be directly
affected by decisions made by the Member.
Holds, directly or indirectly, deferred bonus share rights or share options in the
employing organisation, the value of which might be affected by decisions made by
the Member.
Participates in compensation arrangements which provide incentives to achieve
targets or to support efforts to maximise the value of the employing organisation’s
shares. An example of such an arrangement might be through participation in
incentive plans which are linked to certain performance conditions being met.
240.3 A3 Factors that are relevant in evaluating the level of such a threat include:
The significance of the Financial Interest. What constitutes a significant Financial
Interest will depend on personal circumstances and the materiality of the Financial
Interest to the individual.
Policies and procedures for a committee independent of management to determine
the level or form of senior management remuneration.