APES 110 Code of Ethics for Professional Accountants (including Independence Standards) Part 3

Conflicts of interest create threats to compliance with several fundamental principles, such as objectivity, confidentiality and professional behaviour. Conflicts of interest may arise by business interests or relationships with clients or third parties.

Section 310 requires members in public practice not to allow conflict of interest to compromise professional or business judgement.   If conflicts of interest are identified, members in public practice are required to apply appropriate safeguards to eliminate them or reduce them to an acceptable level.

When a conflict of interest creates a threat that cannot be eliminated or reduced to an acceptable level, the member must not accept, or must resign from, the conflicting engagement.

Acceptance of a new client relationship or changes in an existing engagement might create a threat to compliance with one or more of the fundamental principles. Section 320 requires members in public practice to determine whether there are any reasons for not accepting an engagement and to periodically review whether to continue with existing client engagements.

Members in public practice usually need the client’s permission to initiate discussion with existing or predecessor accountant. If unable to communicate with existing or predecessor accountant, they shall take other reasonable steps to obtain information about any possible threats.

Requests for second opinions on the application of standards or principles by an entity who is not an existing client may create threats to compliance with fundamental principles. Section 321 requires members in public practice to evaluate the significance of any threats and apply safeguards when necessary to eliminate them or reduce them to an acceptable level.

Appointing an Engagement Quality Reviewer who has involvement in the work being reviewed or close relationships with those responsible for performing that work might create threats to compliance with the principle of objectivity. Section 325 provides guidance on identifying, evaluating and addressing threats to objectivity that might arise in relation to engagement quality reviewers and other appropriate reviewers.

A member in public practice must evaluate any threats to compliance with the fundamental principles that may arise from the level of fees quoted to clients and apply safeguards to eliminate the threat or reduce it to an acceptable level. A self-interest threat may be created, for example, if the quoted fee is so low that it makes it difficult to perform the engagement in accordance with applicable standards.

Contingent fees* and referral fees and commissions used for non-assurance engagements may create threats to compliance with fundamental principles, such as objectivity.

Section 330 requires members in public practice to inform clients in writing of any referral fee or commission received, who it is received from and how it has been calculated.

Any receipts of commissions or other similar benefits in connection with assurance engagements create threats to independence as no available safeguards could reduce the threats to an acceptable level.

*APESB has prohibited the use of contingent fees in certain circumstances, described in the following APESB Standards: APES 215 Forensic Accounting Services; APES 225 Valuation Services; APES 330 Insolvency Services; APES 345 Reporting on Prospective Financial Information Prepared in Connection with a Disclosure Document; and APES 350 Participation by members in Public Practice in Due Diligence Committees in connection with a Public Document.

Members in public practice or their families may be offered an inducement that can take many different forms, like gifts or hospitality from clients that may create threats to compliance with the fundamental principles. A self-interest, familiarity or intimidation threat may be created for example when a gift from a client is accepted. The nature, value and intent of the offer will affect the existence and significance of the threat.

According to section 340, an inducement is an object, situation, or action that is used to influence another’s behaviour.  Laws and regulations, such as bribery and corruption, prohibit the offering of, or accepting of inducements in certain circumstances. 

If a reasonable and informed third party, weighing all the specific facts and circumstances, would consider the offer trivial and inconsequential, then it can be concluded that any threat to compliance with the fundamental principles is at an acceptable level.

A member in public practice must evaluate the significance of any threats and apply safeguards when necessary to eliminate the threats or reduce them to an acceptable level. When the threats cannot be eliminated or reduced to an acceptable level through the application of safeguards, a member in public practice must not accept such an offer.

A member in public practice must not assume custody of any client assets unless permitted to do so by law because it creates threats to compliance with the fundamental principles.  Assuming custody of client assets may, for example, create a self-interest threat to professional behaviour and objectivity.

Section 350 requires members in public practice to make inquiries about the source of the assets and consider related legal and regulatory obligations as part of client and engagement acceptance procedures related to assuming custody of client money or assets . After taking custody, members must comply with the law and regulations relevant to holding the assets, keep assets separate from personal or Firm assets, use them only for their intended purpose and be ready to account for the assets.

What is NOCLAR? 

NOCLAR is any act of omission or commission, intentional or unintentional, committed by the employer – including by management or by those charged with governance, or by others working for, or under the direction of the employer– which is contrary to prevailing laws or regulations.

Which laws and regulations? 

Laws and regulations that have a direct effect on the determination of material amounts and disclosures in the financial statements. Other laws and regulations, even if they do not have a direct effect on financial statements, compliance with which may be fundamental to the entity’s operations, business, or where non-compliance may lead to material penalties.

Section 360 guides the members in public practice on how best to act in the public interest when they become aware of NOCLAR or suspected NOCLAR. NOCLAR does not impose an obligation to members to disclose a non-compliance, or suspected non-compliance to an authority, when there is no legal obligation to do so.

However, when responding to NOCLAR, or suspected NOCLAR members in public practice are to comply with the principles of integrity and professional behaviour and with the relevant NOCLAR requirements and consider whether disclosure to an appropriate authority is an appropriate course of action in the circumstances.These vary depending on the role and specific characteristics of each case, but there are requirements for members to respond to NOCLAR and not turn a blind eye.

If a member decides that disclosure of NOCLAR to an appropriate authority is the right course of action in the circumstances, then such a disclosure will not be considered a breach of confidentiality.
Members are required to act in good faith and exercise caution. Members cannot disclose NOCLAR to an appropriate authority if doing so would be contrary to law or regulation.