Which of the following accounting organizations have provided examples of ethical frameworks

The long-awaited International Code of Ethics for Professional Accountants, including International Independence Standards is here. The International Ethics Standards Board for Accountants (IESBA), an international standard-setting board that is responsible for issuing global ethics and independence standards, has worked long and hard to reconstruct its ethics code. What has changed in the IESBA Code, and how is the code better? Before addressing that question, it's important to understand the code's impact on professional accountancy bodies.

The IESBA standards significantly influence the accounting profession globally, including in the United States. The AICPA and other professional accountancy organizations worldwide, including the Chartered Institute of Management Accountants (CIMA), are "member bodies" of the International Federation of Accountants (IFAC) that agree (among other things) to meet the standards set by IFAC-supported boards, including the IESBA. (For a discussion of CIMA's Code of Ethics, see the sidebar "Ethics for CIMA Members.")

The AICPA Professional Ethics Executive Committee (PEEC) monitors the IESBA's standard-setting activities and may propose updates to the AICPA Code of Professional Conduct accordingly. In addition, when performing services under the International Standards on Auditing (ISAs), auditors must apply the IESBA Code plus any national ethical requirements. Lastly, members of the IFAC Forum of Firms, an association of larger global audit firm networks, agree to adopt policies and methodologies that conform to the IESBA Code (see the sidebar "A Forum to Promote Quality").

BUILDING A BETTER CODE

More than a mere redesign, improvements to the code are multifaceted, spanning the code's structure and applicability, conceptual underpinnings, formatting, language, and clarity. The code emphasizes three key messages to the "professional accountant." They are:

• Comply with the fundamental principles;
• Be independent, when required; and
• Apply the conceptual framework to identify, evaluate, and address threats to compliance with the fundamental principles.

Let's look at each of these in turn.

FUNDAMENTAL PRINCIPLES

The professional accountant's overarching objective under the code is to comply with the fundamental principles of ethical conduct, which support his or her duty to the public interest. The fundamental principles are:

• Integrity;
• Objectivity;
• Professional competence and due care;
• Confidentiality; and
• Professional behavior.

All roads in the code lead back to one or more of these five principles.

BE INDEPENDENT

The code consistently reminds professional accountants to be independent when performing audit, review, or other assurance services. The independence rules always have been part of the code, but now they have been moved to a new section, International Independence Standards, which is divided into two subsections (independence when performing financial statement audits and reviews (Part 4A) and independence when performing all other assurance services (Part 4B)). Professional accountants are required to apply the conceptual framework to identify, evaluate, and address threats to independence. Independence "of mind" and "in appearance" requires adherence to the fundamental principles of integrity and objectivity. New and improved provisions help accountants apply the conceptual framework when dealing with threats to independence in various contexts.

THE CONCEPTUAL FRAMEWORK

The code consistently reminds professional accountants to identify, evaluate, and address threats to compliance with the fundamental principles using the conceptual framework, which requires the professional accountant to:

• Apply professional judgment;
• Understand facts and circumstances and be alert to changing circumstances and new information; and
• Apply a "reasonable and informed third-party test" so that appearance concerns are fully considered.

Clearer provisions on key topics such as conflicts of interest, professional appointment, pressure, and preparing and presenting information illustrate how to apply the framework in those contexts. The code introduces enhanced material (factors) to help in applying the conceptual framework. Also, a stronger link is now made between "threats" to compliance with the fundamental principles and actions that might be "safeguards." Threats, which make it difficult for the professional accountant to comply with the fundamental principles, can be created by a broad range of facts and circumstances, including interests and relationships. Safeguards are actions that effectively reduce to an acceptable level threats to compliance with the fundamental principles. The code also contains new material on professional judgment that underscores the importance of gaining an adequate understanding of the facts and circumstances in exercising professional judgment.

ENHANCED CLARITY

The revised and restructured code makes the text easier to read and understand. The IESBA believes the enhanced clarity will also facilitate enforcement by professional bodies and regulators. Here's why. The code clearly distinguishes "requirements" ("R" is the first digit in the citation; for example, R510.4) from "application material" (which includes an "A" in the citation; for example, 510.4 A1) in each subject-matter area. Requirements are general and specific obligations imposed on the professional accountant to comply with the fundamental principles in that subject matter; they generally use the term shall. Application material puts requirements in context and provides factors, explanations, suggested actions, illustrations, or other guidance that helps the professional accountant comply with the code.

The following summary of two code provisions illustrates the distinction between requirements and application material:

• R510.4: This requirement indicates the persons and entities who may not hold a direct financial interest in an audit client, which includes all partners who practice in the office in which the audit partner conducts the engagement.
• 510.4 A1: This application material addresses the situation in which the audit partner is assigned to Office A but the audit staff perform the audit in Office B. Here, the code advises professional accountants to use judgment in determining the "practice office" whose other partners will be subject to the requirement in R510.4.

This approach, which originated in the ISAs and was applied in the AICPA Auditing Standards Board's clarity project, is familiar to many professional accountants.

The IESBA also clarified "who" is tasked with performing actions in the code, which was not always obvious in the extant code. Finally, the code more clearly links the requirement to use the conceptual framework to comply with the fundamental principles and makes it crystal-clear that a professional accountant should disassociate or terminate from an employer or client engagement, or not initiate professional activities at all, when safeguards do not reduce threats to an acceptable level.

STRUCTURAL CHANGES

The new code is structured as shown in the graphic "New Code's Structure."

New code's structure

The American Institute of Certified Public Accountants (AICPA) is a professional organization responsible for developing professional accounting ethical values. The AICPA requires professional accountants to act responsibly when engaging in accounting services and reviewing sensitive financial information. Accountants should always exercise sound moral judgment in all accounting activities.

Accountants have the unique responsibility to provide clients with professional services while presenting a truthful and accurate assessment of a company's financial health to the general public.

Integrity is an important fundamental element of the accounting profession. Integrity requires accountants to be honest, candid and forthright with a client's financial information. Accountants should restrict themselves from personal gain or advantage using confidential information. While errors or differences in opinion regarding the applicability of accounting laws do exist, professional accountants should avoid the intentional opportunity to deceive and manipulate financial information.

Public accounting firms or private companies often develop a code of ethics or conduct for accountants. These ethics and conduct rules ensure all accountants act in a consistent manner. In the absence of specific rules or standards, accountants should review their actions to ensure they are following commonly accepted principles.

Objectivity and independence are important ethical values in the accounting profession. Accountants must remain free from conflicts of interest and other questionable business relationships when conducting accounting services. Failure to remain objective and independent may hamper an accountant's ability to provide an honest opinion about a company's financial information. Objectivity and independence are also important ethical values for auditors.

The accounting industry usually limits the number of services public accounting firms or individual certified public accountants (CPA) can offer clients. Accounting services include general accounting, auditing, tax and management advisory services. Accountants who perform more than one of these services for a client may compromise their objectivity and independence.

For example, individuals who handle general accounting functions and then audit this information are essentially reviewing their own work. This situation may allow an accountant to hide a company's negative financial information.

Due care is the ethical value requiring accountants to observe all technical or ethical accounting standards. Professional accountants are often required to review generally accepted accounting principles (GAAP) and apply this framework to a company's specific financial information. Due care requires accountants to exercise competence, diligence and a proper understanding of financial information.

Competence is usually based on individual's education and experience. Thus, due care may require senior accountants to supervise and direct other accountants with less experience in the accounting profession.