(a) Compliance with ACCA’s Code of Ethics and Conduct fundamental principles can be threatened by a number of areas. The five categories of threats, which may impact on ethical risk, are:
– Self-interest
– Self-review
– Advocacy
– Familiarity
– Intimidation.
Examples for each category (Only one example required per threat):
Self-interest
– Undue dependence on fee income from one client
– Close personal or business relationships
– Financial interest in a client
– Incentive fee arrangements
– Concern over employment security
– Commercial pressure from outside the employing organisation
– Inappropriate personal use of corporate assets.
Self-review
– Member of assurance team being or recently having been employed by the client in a position to influence the subject matter being reviewed
– Involvement in implementation of financial system and subsequently reporting on the operation of said system
– Same person reviewing decisions or data that prepared them
– An analyst, or member of a board, audit committee or audit firm being in a position to exert a direct or significant influence over the financial reports
– The discovery of a significant error during a re-evaluation of the work undertaken by the member
– Performing a service for a client that directly affects the subject matter of an assurance engagement.
Advocacy
– Acting as an advocate on behalf of a client in litigation or disputes
– Promoting shares in a listed audit client
– Commenting publicly on future events in particular circumstances
– Where information is incomplete or advocating an argument which is unlawful
Familiarity
– Long association with a client
– Acceptance of gifts or preferential treatment (significant value)
– Over familiarity with management
– Former partner of firm being employed by client
– A person in a position to influence financial or non-financial reporting or business decisions having an immediate or close family member who is in a position to benefit from that influence.
Intimidation
– Threat of litigation
– Threat of removal as assurance firm
– Dominant personality of client director attempting to influence decisions
– Pressure to reduce inappropriately the extent of work performed in order to reduce fees.
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