Code of Ethics for Professional Accountants

Definition

The Code of Ethics for Professional Accountants refers to the set of principles and guidelines created by the International Ethics Standards Board for Accountants (IESBA) aimed at guiding the ethical behavior and professional conduct of accountants globally. The code defines the standards for integrity, objectivity, professional competence, confidentiality, and professional behavior expected from accounting professionals.

Examples

Integrity: An accountant must be honest and straightforward in all professional and business relationships. For example, an accountant must not manipulate financial statements to show a false performance of a company.
Objectivity: Accountants should not allow bias, conflict of interest, or undue influence of others to override professional or business judgments. For example, an accountant should not favor or prioritize a client’s interests over the fairness presented in financial reports.
Professional Competence and Due Care: Accountants must maintain professional knowledge and skills to ensure that a client or employer receives competent professional service. They should act diligently in line with applicable technical and professional standards.
Confidentiality: Accountants must respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose such information without proper authority or unless there is a legal or professional right or duty to disclose.
Professional Behavior: Accountants must comply with relevant laws and regulations and avoid any conduct that discredits the profession. Timely submission of financial reports and advising clients against unethical practices is part of this.

Frequently Asked Questions (FAQs)

What is the purpose of the Code of Ethics for Professional Accountants?

The purpose is to establish a universal standard of conduct, ensuring accountants uphold the highest levels of integrity and professionalism in their work.

Who governs the Code of Ethics for Professional Accountants?

The International Ethics Standards Board for Accountants (IESBA) is responsible for the establishment and governance of the Code of Ethics for Professional Accountants.

Is compliance with the Code of Ethics mandatory?

Compliance is mandatory for accountants who are members of organizations that adopt the IESBA’s code, and it is considered best practice for all accountants.

How often is the Code of Ethics updated?

The IESBA revises and updates the Code of Ethics periodically to reflect new ethical challenges and changes within the profession.

What happens if an accountant breaches the Code of Ethics?

Breaches can lead to disciplinary actions, including suspension, fines, and revocation of the professional license, depending on the severity of the breach and the jurisdiction.

Only under specific circumstances such as legal obligation or professional duty, otherwise the principle of confidentiality must be maintained.

Integrity: Commitment to truthfulness and honesty.
Objectivity: Unbiased decision-making and judgment in professional activities.
Professional Competence and Due Care: Maintaining updated professional knowledge and providing diligent service.
Confidentiality: Maintaining privacy of sensitive information acquired through professional dealings.
Professional Behavior: Conducting oneself in a manner that upholds the reputation of the profession.

Online References

Suggested Books for Further Studies

“Ethics in Accounting: A Decision-Making Approach” by Gordon Klein
“Accounting Ethics” by Ronald Duska and Brenda Shay Duska
“Business and Professional Ethics” by Leonard J. Brooks and Paul Dunn
“The Ethical Obligations and Decision-Making in Accounting” by Steven Mintz and Roselyn Morris
“The Accountant’s Guide to the True and Fair View” by Keith Alfredson

Accounting Basics: “Code of Ethics for Professional Accountants” Fundamentals Quiz

### What organization governs the Code of Ethics for Professional Accountants? - [ ] Financial Accounting Standards Board (FASB) - [x] International Ethics Standards Board for Accountants (IESBA) - [ ] International Accounting Standards Board (IASB) - [ ] Public Company Accounting Oversight Board (PCAOB) > **Explanation:** The International Ethics Standards Board for Accountants (IESBA) is responsible for creating and governing the Code of Ethics for Professional Accountants. ### Which principle requires accountants to not allow bias or conflicts of interest to affect their judgment? - [x] Objectivity - [ ] Integrity - [ ] Confidentiality - [ ] Professional Competence and Due Care > **Explanation:** Objectivity is the principle that requires accountants to avoid bias, conflicts of interest, and undue influence in their professional judgments. ### Why is integrity important in the Code of Ethics? - [ ] Ensures compliance with industry standards - [x] Promotes honesty and truthfulness in professional activities - [ ] Facilitates easy decision making - [ ] Encourages confidentiality > **Explanation:** Integrity is crucial because it ensures honesty and truthfulness in professional activities, which builds trust in the profession. ### Can an accountant disclose confidential client information without consent? - [ ] Always - [ ] Never - [ ] Only to friends - [x] Only under specific legal or professional obligations > **Explanation:** Accountants can only disclose confidential information without client consent under specific legal or professional circumstances. ### What is the impact of not complying with the Code of Ethics? - [ ] Reduced social media following - [x] Disciplinary actions, including fines and license revocation - [ ] Higher professional reputation - [ ] Increased business opportunities > **Explanation:** Breaches of the Code of Ethics can result in disciplinary actions, including fines, suspensions, and even the revocation of the professional license. ### What does ‘Professional Competence and Due Care’ entail? - [ ] Keeping client information confidential - [ ] Avoiding conflicts of interest - [x] Maintaining updated knowledge and skill and acting diligently - [ ] Being straightforward and honest > **Explanation:** Professional Competence and Due Care requires accountants to maintain updated professional knowledge and skills and act diligently in their professional duties. ### How often is the Code of Ethics revised? - [ ] Every year - [ ] Every five years - [ ] Only when there's a major scandal - [x] Periodically to adapt to new ethical challenges and changes > **Explanation:** The Code of Ethics is revised periodically by the IESBA to reflect new ethical challenges and changes in the profession. ### The principle of confidentiality obliges accountants to do what? - [ ] Disclose client details whenever requested - [x] Protect the privacy of information acquired during professional relationships - [ ] Ignore ethical dilemmas - [ ] Publicize their work freely > **Explanation:** The principle of confidentiality obliges accountants to protect the privacy of client information acquired during professional relationships unless there is a legal or professional need to disclose it. ### Which principle ensures that accountants act professionally complying with laws and regulations? - [x] Professional Behavior - [ ] Objectivity - [ ] Confidentiality - [ ] Integrity > **Explanation:** Professional Behavior dictates that accountants must comply with relevant laws and regulations and conduct themselves in ways that uphold the profession's reputation. ### What is a foundational principle of the Code of Ethics? - [ ] Marketing ability - [ ] Technological adeptness - [x] Integrity - [ ] Business acumen > **Explanation:** Integrity is a foundational principle of the Code of Ethics, ensuring that accountants are honest and truthful in their professional role.

Thank you for exploring the Code of Ethics for Professional Accountants and completing the quiz to solidify your understanding. Keep prioritizing ethical practices in your accounting career!