This Part of the Code sets out requirements and application material for professional accountants in business when applying the conceptual framework set out in Section 120. It does not describe all of the facts and circumstances, including professional activities, interests and relationships, that could be encountered by professional accountants in business, which create or might create threats to compliance with the fundamental principles. Therefore, the conceptual framework requires professional accountants in business to be alert for such facts and circumstances.
Investors, creditors, employing organizations and other sectors of the business community, as well as governments and the general public, might rely on the work of professional accountants in business. Professional accountants in business might be solely or jointly responsible for the preparation and reporting of financial and other information, on which both their employing organizations and third parties might rely. They might also be responsible for providing effective financial management and competent advice on a variety of business-related matters.
A professional accountant in business might be an employee, contractor, partner, director (executive or non-executive), owner-manager, or volunteer of an employing organization. The legal form of the relationship of the accountant with the employing organization has no bearing on the ethical responsibilities placed on the accountant.
In this Part, the term "professional accountant" refers to:
A professional accountant in business; and
An individual who is a professional accountant in public practice when performing professional activities pursuant to the accountant's relationship with the accountant's firm, whether as a contractor, employee or owner. More information on when Part 2 is applicable to professional accountants in public practice is set out in paragraphs R120.4, R300.5 and 300.5 A1.
Requirements and Application Material
A professional accountant has a responsibility to further the legitimate objectives of the accountant's employing organization. The Code does not seek to hinder accountants from fulfilling that responsibility, but addresses circumstances in which compliance with the fundamental principles might be compromised.
Professional accountants may promote the position of the employing organization when furthering the legitimate goals and objectives of their employing organization, provided that any statements made are neither false nor misleading. Such actions usually would not create an advocacy threat.
The more senior the position of a professional accountant, the greater will be the ability and opportunity to access information, and to influence policies, decisions made and actions taken by others involved with the employing organization. To the extent that they are able to do so, taking into account their position and seniority in the organization, accountants are expected to encourage and promote an ethics-based culture in the organization. Examples of actions that might be taken include the introduction, implementation and oversight of:
Ethics education and training programs.
Ethics and whistle-blowing policies.
Policies and procedures designed to prevent non-compliance with laws and regulations.
Threats to compliance with the fundamental principles might be created by a broad range of facts and circumstances. The categories of threats are described in paragraph 120.6 A3. The following are examples of facts and circumstances within each of those categories that might create threats for a professional accountant when undertaking a professional activity:
A professional accountant holding a financial interest in, or receiving a loan or guarantee from, the employing organization.
A professional accountant participating in incentive compensation arrangements offered by the employing organization.
A professional accountant having access to corporate assets for personal use.
A professional accountant being offered a gift or special treatment from a supplier of the employing organization.
A professional accountant determining the appropriate accounting treatment for a business combination after performing the feasibility study supporting the purchase decision.
A professional accountant having the opportunity to manipulate information in a prospectus in order to obtain favorable financing.
A professional accountant being responsible for the financial reporting of the employing organization when an immediate or close family member employed by the organization makes decisions that affect the financial reporting of the organization.
A professional accountant having a long association with individuals influencing business decisions.
A professional accountant or immediate or close family member facing the threat of dismissal or replacement over a disagreement about:
- The application of an accounting principle.
- The way in which financial information is to be reported.
An individual attempting to influence the decision-making process of the professional accountant, for example with regard to the awarding of contracts or the application of an accounting principle.
The professional accountant's evaluation of the level of a threat is also impacted by the nature and scope of the professional activity.
The professional accountant's evaluation of the level of a threat might be impacted by the work environment within the employing organization and its operating environment. For example:
Leadership that stresses the importance of ethical behavior and the expectation that employees will act in an ethical manner.
Policies and procedures to empower and encourage employees to communicate ethics issues that concern them to senior levels of management without fear of retribution.
Policies and procedures to implement and monitor the quality of employee performance.
Systems of corporate oversight or other oversight structures and strong internal controls.
Recruitment procedures emphasizing the importance of employing high caliber competent personnel.
Timely communication of policies and procedures, including any changes to them, to all employees, and appropriate training and education on such policies and procedures.
Ethics and code of conduct policies.
Sections 210 to 270 describe certain threats that might arise during the course of performing professional activities and include examples of actions that might address such threats.
In extreme situations, if the circumstances that created the threats cannot be eliminated and safeguards are not available or capable of being applied to reduce the threat to an acceptable level, it might be appropriate for a professional accountant to resign from the employing organization.
When communicating with those charged with governance in accordance with the Code, a professional accountant shall determine the appropriate individual(s) within the employing organization's governance structure with whom to communicate. If the accountant communicates with a subgroup of those charged with governance, the accountant shall determine whether communication with all of those charged with governance is also necessary so that they are adequately informed.
In determining with whom to communicate, a professional accountant might consider:
The nature and importance of the circumstances; and
The matter to be communicated.
Examples of a subgroup of those charged with governance include an audit committee or an individual member of those charged with governance.
If a professional accountant communicates with individuals who have management responsibilities as well as governance responsibilities, the accountant shall be satisfied that communication with those individuals adequately informs all of those in a governance role with whom the accountant would otherwise communicate.
In some circumstances, all of those charged with governance are involved in managing the employing organization, for example, a small business where a single owner manages the organization and no one else has a governance role. In these cases, if matters are communicated with individual(s) with management responsibilities, and those individual(s) also have governance responsibilities, the professional accountant has satisfied the requirement to communicate with those charged with governance.