The document discusses concepts related to corporate governance and codes of ethics for accountants. It provides an overview of key concepts including definitions of corporate governance from various sources like the OECD and Cadbury Report. It also discusses the International Federation of Accountants (IFAC) code of ethics including fundamental principles like integrity, objectivity, competence. The code addresses threats like self-interest, intimidation and safeguards for accountants in business and public practice.

1. International Federation of Accountants
Corporate Governance and
Code of Ethics for
Accountants
NBAA Seminar 27th September 2016, Zanizibar
Kassim Hussein, PhD
Contact 255 754360174
kassimhussein2002@yahoo.com

2. International Federation of Accountants
Sources
CG practices, Kings 1 - 1V
Cadbury Reports, OECD
NBAA/IFAC Code of Ethics
______________________
Organization:
Concepts and meaning
Relationships
IFC structure
Part A – Framework applies to all professional accountants
Part B – Professional accountants in public practice
Part C – Professional accountants in business
Threats/Risks

3. Ethics of Professional Accountants

5. CG includes all structures, processes,
policies, systems and procedures
whereby the organization are
governed.
Concepts: Corporate Governance and Code of Ethics

6. Corporate Governance is a mechanism
through which boards and directors are
able to direct, monitor and supervise the
conduct and operation of the corporation
and its management in a manner that
ensures appropriate levels of authority,
accountability, stewardship, leadership,
direction and control.
IFC
Concepts: Corporate Governance and Code of Ethics

7. 7
“Corporate governance is concerned with
holding the balance between economic
and social goals and between individual
and communal goals…… The aim is to
align as nearly as possible the interests of
individuals, corporations and society.”
Sir Adrian Cadbury
Corporate Governance Overview, 1999
Concepts: Corporate Governance and Code of Ethics

8. • The OECD - "Corporate governance
involves a set of relationships between a
company’s management, its board, its
shareholders and other stakeholders.
Corporate governance also provides the
structure through which the objectives of
the company are set, and the means of
attaining those objectives and monitoring
performance are determined."
Concepts: Corporate Governance and Code of Ethics

9. Two types of relationships
The long term
relationship
• deal with checks and
balances,
•incentives for
manager and;
•communications
between management
and investors.
The
transactional
relationship
involves dealing
with disclosure
and authority.

10. International Standard on Auditing
(ISA)
• International Standard on Auditing (ISA)
260:
“………… that:
Governance is the term used to
describe the role of persons
entrusted with the supervision,
control, and direction of an entity”.

11. • Ethics involves judgments as to good and
bad, right and wrong and what ought to
be (what is good, bad or who decides)
• The golden rule therefore is: “do unto
others as you would have them do unto
you”.
Concepts: Corporate Governance and Code of Ethics
Ethics

12. • Ethics deals with things to be sought and
things to be avoided
• Morals: rules or duties that govern our
behavior, e.g. “do not tell a lie”
Morals
Concepts: Corporate Governance and Code of Ethics

13. values
• Values: these are beliefs that a given behavior
or outcome is desirable or good.
• Values serve as standards of conduct that
guide our behavior
• Example: how we value the environment, self-
respect keeping our family safe, good health,
(e) politics.
Concepts: Corporate Governance and Code of Ethics

14. Concepts: Corporate Governance and Code of
Ethics
IFC –
 Part A – Framework applies to all professional
accountants
 Part B – Professional accountants in public practice
 Part C – Professional accountants in business

15. • Integrity
– To be straight forward and honest in all
professional and business relationships
• Objectivity
– To not allow bias, conflict of interest or
undue influence of others to override
professional or business judgments
Fundamental Principles

16. Professional Competence and Due Care
 To maintain professional knowledge and
skill at the level required to ensure
competent professional services based on
current developments in practice,
legislation and techniques
 To act diligently in accordance with
applicable technical and professional
standards
Fundamental Principles

17. Confidentiality
– To refrain from disclosing confidential information
acquired as a result of professional and business
relationships without proper and specific
authority to disclose unless there is a legal or
professional right or duty to disclose
– To refrain from using confidential information
acquired as a result of professional and
business relationships for personal advantage
or the advantage of third parties
Fundamental Principles

18. Professional behavior
–Obligation to comply with relevant
laws and regulations and avoid any
action that discredits the profession/
role as a director
Fundamental Principles in CG also focus on

19. • Ethics is a code of behavior that a society
considers moral and appropriate for guiding
relationship with one another. How does the
society set this?
• It includes: honesty, integrity, fair, open and
straight-forward dealing.
Concepts: Corporate Governance and Code of Ethics

20. Objectives of Professional
Accountants
work to the highest standards of
professionalism
attain the highest levels of performance, and
meet the public’s interest

21. • Requires active consideration of issues
• Establishes basic principles
• Can be applied to differing circumstances
• Responsive to rapid change
• Requires judgment rather than literal interpretations
encouraged by a pure rules approach
IFC - Conceptual Framework Approach

22. • Self-interest
• Self-review
• Advocacy
• Familiarity
• Intimidation
Threats/ Risks

23. Two categories:
• Created by the profession, legislation or
regulation
• In the work environment
Safeguards/Risks

24. IFAC Code of Ethics – fundamental
Principles for all Accountants:
 Integrity (Sec 110)
 Objectivity (Sec 120)
 Professional Competence and Due Care (Sec 130)
 Confidentiality (Sec 140)
 Professional Behavior (Sec 150)
Continuation…

25. Integrity
The principle of integrity imposes an obligation on all
professional accountants to be straightforward and
honest in performing professional services. It also
implies fair dealing and truthfulness.
In CG the maxim: ‘Fit for purpose’ entails competency
and the board has to have a competency mix
Objectivity:
The principle of objectivity imposes on all professional
accountant not to compromise their professional or
business judgment because of bias, conflict of
interest or undue influence of others. This is same in
CG principle of ‘ independence’

26. Professional Competence and Due Care:
A professional accountant has a continuing
duty to maintain professional knowledge and
skill at the level required to ensure that a
client or employer receives competent
professional service based on current
developments in practice, legislation and
techniques.

27. Confidentiality:
A professional accountant should respect the
confidentiality of information acquired as a result of
professional and business relationships and should not
disclose any such information to third parties without
proper and specific authority.
Professional Behavior:
A professional accountant should comply with relevant
laws and regulations and should avoid any action that
discredits the profession.

28. CG fiduciary responsibilities..
epitomized
Fiduciary duty means that, as shareholders’ guardians,
directors must be trustworthy, acting in the best interest of
shareholders, and investors in turn have confidence in the
directors’ actions.
The corporate governance literature presents the following
fiduciary duties of boards of directors:
– Duty of due care
– Duty of loyalty
– Duty of Good Faith
– Duty to Promote Success
– Duty to Exercise Diligence, Independent Judgment, and Skill
– Duty to Avoid Conflict of Interests
– Fiduciary Duties and Business Judgment Rules.

29. Conceptual Framework Approach
• A conceptual framework requires a professional accountant to
identify, evaluate and address threats to compliance with the
fundamental principles, rather than merely comply with a set
of specific rules which may be arbitrary.
• If threats to ethics are not clearly insignificant, a professional
accountant should apply safeguards to eliminate the threats or
reduce them to an acceptable level.

30. When safeguards are never adequate
Prohibitions

31. Threat to
Independence
Advocacy
Threat Familiarity
Threat
Self
Interest
Intimidation
Threat
Self Review
Threat
Identification of threats to Auditors’ independence

32. Threats and Safeguards
Compliance with the fundamental principles may
potentially be threatened by a broad range of
circumstances. Many threats fall into the following
categories:
• Self-interest threats
• Self-review threats
• Advocacy threats
• Familiarity threats
• Intimidation threats

33. Self-Interest Threat
A Self-interest threat occurs as a result of the financial or
other interests of a professional accountant or of an
immediate or close family member;
In CG this situation is referred as Conflict of Interest
More over, in CG there is ‘conduct risk assessment’

34. Self Interest Threats Circumstances
• A financial interest in a client or jointly holding a
financial interest with a client.
• Undue dependence on total fees from a client.
• Having a close business relationship with a client.
• Concern about the possibility of losing a client.
• Potential employment with a client.
• Contingent fees relating to an engagement.
• A loan to or from a client or any of its directors or
officers.

35. Self-Review Threats Circumstances
• The discovery of a significant error during a re-evaluation
of the work of the auditor.
• Reporting on the operation of financial systems after being
involved in their design or implementation.
• Having prepared the original data used to generate records
that are the subject matter of the engagement.
• A member of the team being, or having recently been, a
director or officer of that client.
• A member of the team being, or having recently been,
employed by the client in a position to exert direct and
significant influence over the subject matter of the
engagement.
• Performing a service for a client that directly affects the
subject matter of the engagement.

36. Advocacy Threat
An Advocacy Threat occurs when a professional
accountant promotes a position or opinion to the
point that subsequent objectivity may be
compromised.
Examples of circumstances that create advocacy
threats :
Selling, underwriting or otherwise dealing in
financial securities or shares of a client;
Acting as an advocate on behalf of a client in
litigation or disputes with third parties.

37. • Professional Appointment
• Conflicts of Interest
• Second Opinions
• Fees and Other Types of Remuneration
• Marketing Professional Services
• Gifts and Hospitality
• Custody of Client Assets
• Objectivity – All Services
• Independence – Audit and Review Engagements
• Independence – Other Assurance Engagements
Part B – Professional Accountants in
Public Practice

38. • Firm includes network firm, except where
otherwise stated
• Independence of mind and independence in
appearance
• Public interest entities: additional provisions in
Section 290 that reflect the extent of public
interest in certain entities
Independence for Audit and Review Engagements

39. • Documentation: conclusions regarding
compliance with independence requirements,
and substance of any relevant discussions
that support those conclusions
Independence for Audit and Review Engagements – cont’d

40. • Financial interests
• Loans and guarantees
• Business relationships
• Family and personal relationships
• Employment with an audit client
• Temporary staff assignments
Independence for Audit and Review Engagements – cont’d

41. • Recent service with an audit client
• Serving as a director or officer of an audit client
• Long association of senior personnel (including
partner rotation) with an audit client
Independence for Audit and Review Engagements – cont’d

42. • Provision of non-assurance services to audit
clients
– Management responsibilities
– Preparing accounting records and financial
statements
– Valuation services
– Taxation services
– Internal audit services
Independence for Audit and Review Engagements – cont’d

43. • Provision of non-assurance services to audit
clients
– IT systems services
– Litigation support services
– Legal services
– Recruiting services
– Corporate finance services
Independence for Audit and Review Engagements – cont’d

44. • Fees
• Compensation and evaluation policies
• Actual or threatened litigation
• Reports that include a restriction on use or
distribution
Independence for Audit and Review Engagements – cont’d

45. • Assurance engagements that are not audit or
review engagements
• Include related entities when reason to believe
relevant to independence
• Include network firms when reason to believe
relevant to independence
Independence for Other Assurance Engagements

46. • Assertion-based assurance engagements
– Independence required from assurance client (party
responsible for the subject matter information, and which may
be responsible for the subject matter)
– When client not responsible for subject matter evaluate the
threats firm has reason to believe created by interests and
relationships with party responsible for subject matter
• Direct reporting engagements
– Independence required from assurance client (party
responsible for the subject matter)
Independence for Other Assurance Engagements

47. • Multiple responsible parties
– Firm may take into account whether interest
or relationship with a particular responsible
party creates a threat. Consider:
• Materiality of subject matter information (or subject matter)
for which the particular responsible party is responsible
• Degree of public interest associated with engagement
Independence for Other Assurance Engagements

48. • Potential conflicts
• Preparation and reporting of information
• Acting with sufficient expertise
• Financial interests
• Inducements
Part C – Professional Accountants in Business

49. Intimidation Threat
 Intimidation Threat occur when a professional accountant
may be deterred from acting objectively by threats, either
actual or perceived.
 Examples of circumstances:
• Being threatened with dismissal or replacement
in relation to a client engagement.
• Being threatened with litigation.
• Being pressured to reduce inappropriately the extent of
work performed in order to reduce fees.

50. Safeguards
Safeguards that may eliminate or reduce such threats
to an acceptable level fall into three broad categories:
– Safeguards created by the profession, legislation or
regulation;
– Safeguards within the client; and
– Safeguards within the firm ’ s own systems and
procedures.

51. Safeguards created by the profession, legislation or
regulation
Educational, training and experience requirements for
entry into the profession.
Continuing professional development requirements.
Corporate governance regulations.
Professional standards.
Professional or regulatory monitoring and disciplinary
procedures
External review by a third party of the reports, returns,
communications or information produced by a
professional accountant.

52. Safeguards within the Client
When the client’s management appoints the firm, persons
other than management ratify or approve the appointment;
The client has competent employees to make managerial
decisions;
Policies and procedures that emphasize the client ’ s
commitment to fair financial reporting;
A corporate governance structure, such as an audit
committee, that provides appropriate oversight and
communications regarding a firm’s services.

53. Safeguards in the work environment
leadership that stresses the importance of independence
and the expectation that members of the teams will act
in the public interest.
Policies and procedures to implement and monitor
quality control of the engagements;
Documented independence policies regarding the
identification of threats to independence, the evaluation
of the significance of these threats and the identification
and application of safeguards to eliminate or reduce the
threats, other than those that are clearly insignificant, to
an acceptable level;

54. Resolution of Ethical Conflicts
If the matter remains unresolved, the professional
accountant should consult with other appropriate
persons within the firm
Where a matter involves a conflict with, or within, an
organization, consult with those charged with
governance of the organization, such as the board of
directors or the audit committee.
If a significant conflict cannot be resolved, obtain
professional advice from the relevant professional
body or legal advisors.
If, after exhausting all relevant possibilities, the
ethical conflict remains unresolved, a professional
accountant should, where possible, refuse to remain
associated with the matter creating the conflict.

55. Professional Appointment
Client Acceptance
- consider whether acceptance would create any
threats to compliance with the fundamental
principles
Engagement Acceptance
- agree to provide only those services that the
accountant is competent to perform.

56. Changes in a Professional Appointment
Before accepting an appointment involving services
that were carried out by another, the proposed auditor
should:
– Request permission from the client to contact former
auditor directly;
– Contact existing auditor before beginning audit.

57. Information from Existing Auditor
• Once the client permission is obtained, the
existing auditor should provide information
honestly and unambiguously.
• If the proposed auditor is unable to communicate
with the existing auditor, the proposed auditor
should try to obtain information about any
possible threats by other means such as through
inquiries of third parties or background
investigations on senior management.
• The existing auditor is no longer required to
provide information in writing or regarding
reasons not to take an audit.

58. Conflicts of Interest
A professional accountant in practice should
take reasonable steps to identify
circumstances that could pose a conflict of
interest. Such circumstances may give rise
to threats to compliance with the
fundamental principles

59. Second Opinions
• Providing a second opinion on the application of
accounting, auditing, reporting or other standards or
principles by or on behalf of a company that is not an
existing client may cause threats to compliance with
the fundamental principles.
• Safeguards such as seeking client permission to
contact the existing auditor, describing the limitations
surrounding any opinion and providing the existing
auditor with a copy of the opinion may be required.

60. Fees and Other Types of Remuneration
An auditor may quote whatever fee
deemed to be appropriate. However, a
self-interest threat to professional
competence and due care is created if the
fee quoted is so low that it may be
difficult to perform the engagement.

61. Commissions, Referral Fees, and Contingent Fees
• A professional accountant in public practice should
not pay or receive a referral fee or commission,
unless he/she has established safeguards to
eliminate the threats or reduce them to an acceptable
level.
• Contingent fees are widely used for certain types of
non-assurance engagements. They may, however,
give rise to self-interest threats to compliance with
the fundamental principles.

62. Advertising and Marketing
When a professional accountant in
public practice solicits new work
through advertising or other forms of
marketing, there may be potential
threats to compliance with the
fundamental principles.

63. What Advertising Cannot Do
A professional accountant should not bring the
profession into disrepute when marketing
professional services. He/she should be honest
and truthful and should not:
• Make exaggerated claims for services offered,
qualifications possessed or experience gained;
or
• Make disparaging references to unsubstantiated
comparisons to the work of another.

64. Gifts and Hospitality
• Self-interest threats to objectivity may be created if a
gift from a client is accepted; intimidation threats to
objectivity may result from the possibility of such
offers being made public.
• Gifts or hospitality which are acceptable are those
which a reasonable and informed third party, having
knowledge of all relevant information, would consider
clearly insignificant.

65. Custody of Client Assets
 Safeguard against a self-interest threat to objectivity , a
professional accountant in public practice entrusted with
money (or other assets) belonging to others should:
 Keep such assets separately from personal or firm
assets; and
 Use such assets only for the purpose for which they
are intended.
 At all times, be ready to account for those assets,
and any income, dividends or gains generated.
 Comply with all relevant laws and regulations
relevant to the holding of and accounting for such
assets.

66. Application of Framework to Specific
Situations
The Code of Ethics, discusses a principles-based
framework for identifying, evaluating and responding
to threats. The framework establishes principles to
identify threats to ethics principles, evaluate the
significance of those threats, and, if the threats are
other than clearly insignificant, identify and apply
safeguards to eliminate the threats or reduce them to
an acceptable level.

67. An accountant may perform services in a
country other than his home country. If
differences exist between ethical
requirements of the two countries, the
strictest provisions should be applied.
Cross-Border Activities

68. The IFAC Code prohibits the following non-audit
services for audit clients:
• Bookkeeping Services
• Valuation services
• Management decision making functions
• Broker-dealer or investment advisor
services
• Litigation support

69. Financial involvement with a
client
 direct financial interest in a client;
 indirect material financial interest
 loans to or from the client or any director or
major stockholder in the client company;
 financial interest in a joint venture with a client
or employee(s) of a client.
 financial interest in non-client with investor or
investee relationship with the client.

70. Professional Competence and Responsibilities
Regarding the Use of Non-Accountants
If a professional accountant does not have the
competence to perform a specific part of the
professional service, technical advice may be sought
from experts
(such as other professional accountants, lawyers,
actuaries, engineers, geologists, and evaluators).
However, since the auditors have ultimate
responsibility for the service, it is his responsibility
to see that the requirements of ethical behavior are
followed.

71. Activities Incompatible with the Practice of
Public Accountancy
 A CPA in public practice should not concurrently
engage in any business, occupation or activity that
impairs or might impair integrity, objectivity or
independence, or the good reputation of the
profession.
 The simultaneous engagement in another activity
unrelated to assurance or accounting services,
which reduces the accountant’s ability to conduct
his accounting practice according to ethical
principles, is inconsistent with public practice.

72. Conflict of Loyalties
• Employed professional accountants owe a duty of
loyalty to their employer as well as to their profession
and there may be times when the two are in conflict.
• An employee cannot legitimately be required to break
the law, breach the ethics, rules, and standards of the
accounting profession, lie to their employer ’ s
auditors, or be associated with a statement that
materially misrepresents the facts.
• If employed accountants cannot resolve any material
issue involving a conflict between their employers and
their professional requirements they may have no
other recourse but to resign.

73. Support for Professional Colleagues and
Professional Competence
• Support for Professional Colleagues
A professional accountant, particularly one having authority
over others, should allow them to develop their own
judgment in accounting matters.
• Professional Competence
An accountant employed in industry, commerce, the public
sector or education may be asked to undertake significant
tasks for which she has not had sufficient specific training or
experience. Where appropriate expert advice and assistance
should be sought.

74. Presentation of Information
A professional accountant is expected to present
financial information fully, honestly and
professionally and so that it will be understood in
its context.
Under CG, the Directors are equally responsible and
have to make attestation on the financial
information

75. Disciplinary action and common sanctions
• Disciplinary action ordinarily arises from such
issues as:
– failure to observe the required standard of professional
care, skills or competence;
– non-compliance with rules of ethics and discreditable;
or dishonorable conduct.
• Sanctions commonly imposed by disciplinary
bodies include:
– reprimand, fine, payment of costs, withdrawal of
practicing rights, suspension, and expulsion from
membership.
– LEGAL OR imposed at the AGM

76. Discussions, Q & A

77. Thank you