APES 110 Code of Ethics for Professional Accountants (including Independence Standards) Part 1

The overarching responsibility for professional accountants is the public interest. Section 100.1.A1 of the Code explains that a distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. Therefore, a member’s responsibility is not to exclusively satisfy the needs of an individual client or employer.

The fundamental principles of professional accountants are outlined in section 110.1 A1. They are:

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 attain and maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional activities based on current technical and professional standards and relevant legislation; and 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. Therefore, not disclose any such information to third parties without proper and specific authority, unless there is a legal or professional right or duty to disclose, nor use the information for the personal advantage of the member or third parties.

e. professional behaviour – to comply with relevant laws and regulations, behave in a manner consistent with the profession's responsibility to act in the public interest in all professional activities and business relationships and avoid any conduct that might discredit the profession.

Section 120.3 to 120.16 describe the framework that members must use to identify, evaluate and address any threats to compliance with the fundamental principles.

The Code is based on a conceptual framework that requires active consideration of issues based on the fundamental principles. The framework can be applied to differing circumstances and relies on professional judgement rather than on specific rules.

The conceptual framework requires members to have an inquiring mind, exercise professional judgement, and use the reasonable and informed third party test when:

• identifying any threats to compliance with the fundamental principles
• evaluating the significance of the identified threats
• addressing any threats by eliminating the threats, applying safeguards to eliminate threats or reduce them to an acceptable level, or declining or ending the specific professional activity.

If threats cannot be eliminated or reduced to an acceptable level because the threats are too significant, or safeguards are not available, or cannot be applied to address the threats,
then the circumstance or relationship creating the threats must be avoided.

The member in such circumstances is required to decline or discontinue the professional activity and, when necessary, a member in public practice is required to resign from the engagement and a member in business is required to resign from the employing organisation.

Acceptable level in the Code is determined by applying the third-party test. It means a level at which a reasonable and informed third-party would be likely to conclude, weighing all the specific facts and circumstances available to the member at that time – that compliance with the fundamental principles is not compromised.

Section R 120.6 states that members shall identify threats to compliance with the fundamental principles. An understanding of the facts and circumstances, including professional activities, interests and relationships that might compromise compliance is prerequisite to the identifications of threats to compliance. 

Threats fall into one or more of the following categories (Section 120.6 A3):

a. self-interest threat. The threat that a financial or other interest will inappropriately influence the 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 activity performed by the member, or by another individual within the member‘s firm or employing organisation, on which the member will rely on when forming a judgement as part of providing a current service

c. advocacy threat. The threat that a member will promote a client’s or employer’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 employer, a member will be too sympathetic to their interests or too accepting of their work

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.

Section R 120.10 requires members who identify threats to compliance to address them by:

• Eliminating the circumstances that are creating the threats;
• Apply safeguards to reduce the threats to an acceptable level; or
• Decline or end the specific Professional Activity.