Introduction (250.1 to 250.3)
250.1
Professional accountants are required to comply with the fundamental principles and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats.
250.2
Offering or accepting inducements might create a self-interest, familiarity or intimidation threat to compliance with the fundamental principles, particularly the principles of integrity, objectivity and professional behavior.
250.3
This section sets out requirements and application material relevant to applying the conceptual framework in relation to the offering and accepting of inducements when undertaking professional activities that does not constitute non-compliance with laws and regulations. This section also requires a professional accountant to comply with relevant laws and regulations when offering or accepting inducements.
Requirements and Application Material
General (250.4 A1)
250.4 A1
An inducement is an object, situation, or action that is used as a means to influence another individual's behavior, but not necessarily with the intent to improperly influence that individual's behavior. Inducements can range from minor acts of hospitality between business colleagues to acts that result in non-compliance with laws and regulations. An inducement can take many different forms, for example:
Gifts.
Hospitality.
Entertainment.
Political or charitable donations.
Appeals to friendship and loyalty.
Employment or other commercial opportunities.
Preferential treatment, rights or privileges.
Inducements Prohibited by Laws and Regulations (R250.5)
R250.5
In many jurisdictions , there are laws and regulations, such as those related to bribery and corruption, that prohibit the offering or accepting of inducements in certain circumstances. The professional accountant shall obtain an understanding of relevant laws and regulations and comply with them when the accountant encounters such circumstances.
Inducements Not Prohibited by Laws and Regulations (250.6 A1 to 250.11 A6)
250.6 A1
The offering or accepting of inducements that is not prohibited by laws and regulations might still create threats to compliance with the fundamental principles.
Inducements with Intent to Improperly Influence Behavior
R250.7
A professional accountant shall not offer , or encourage others to offer, any inducement that is made, or which the accountant considers a reasonable and informed third party would be likely to conclude is made, with the intent to improperly influence the behavior of the recipient or of another individual.
R250.8
A professional accountant shall not accept, or encourage others to accept, any inducement that the accountant concludes is made, or considers a reasonable and informed third party would be likely to conclude is made, with the intent to improperly influence the behavior of the recipient or of another individual.
250.9 A1
An inducement is considered as improperly influencing an individual's behavior if it causes the individual to act in an unethical manner. Such improper influence can be directed either towards the recipient or towards another individual who has some relationship with the recipient. The fundamental principles are an appropriate frame of reference for a professional accountant in considering what constitutes unethical behavior on the part of the accountant and, if necessary by analogy, other individuals.
250.9 A2
A breach of the fundamental principle of integrity arises when a professional accountant offers or accepts , or encourages others to offer or accept, an inducement where the intent is to improperly influence the behavior of the recipient or of another individual.
250.9 A3
The determination of whether there is actual or perceived intent to improperly influence behavior requires the exercise of professional judgment. Relevant factors to consider might include:
The nature, frequency, value and cumulative effect of the inducement.
Timing of when the inducement is offered relative to any action or decision that it might influence.
Whether the inducement is a customary or cultural practice in the circumstances, for example, offering a gift on the occasion of a religious holiday or wedding.
Whether the inducement is an ancillary part of a professional activity, for example, offering or accepting lunch in connection with a business meeting.
Whether the offer of the inducement is limited to an individual recipient or available to a broader group. The broader group might be internal or external to the employing organization, such as other customers or vendors.
The roles and positions of the individuals offering or being offered the inducement.
Whether the professional accountant knows, or has reason to believe, that accepting the inducement would breach the policies and procedures of the counterparty's employing organization.
The degree of transparency with which the inducement is offered.
Whether the inducement was required or requested by the recipient.
The known previous behavior or reputation of the offeror.
Consideration of Further Actions
250.10 A1
If the professional accountant becomes aware of an inducement offered with actual or perceived intent to improperly influence behavior, threats to compliance with the fundamental principles might still be created even if the requirements in paragraphs R250.7 and R250.8 are met.
250.10 A2
Examples of actions that might be safeguards to address such threats include:
Informing senior management or those charged with governance of the employing organization of the professional accountant or the offeror regarding the offer.
Amending or terminating the business relationship with the offeror.
Inducements with No Intent to Improperly Influence Behavior
250.11 A1
The requirements and application material set out in the conceptual framework apply when a professional accountant has concluded there is no actual or perceived intent to improperly influence the behavior of the recipient or of another individual.
250.11 A2
If such an inducement is trivial and inconsequential, any threats created will be at an acceptable level.
250.11 A3
Examples of circumstances where offering or accepting such an inducement might create threats even if the professional accountant has concluded there is no actual or perceived intent to improperly influence behavior include:
Self-interest threats
Familiarity threats
Intimidation threats
250.11 A4
Relevant factors in evaluating the level of such threats created by offering or accepting such an inducement include the same factors set out in paragraph 250.9 A3 for determining intent.
250.11 A5
Example s of actions that might eliminate threats created by offering or accepting such an inducement include:
Declining or not offering the inducement.
Transferring responsibility for any business-related decision involving the counterparty to another individual who the professional accountant has no reason to believe would be, or would be perceived to be, improperly influenced in making the decision.
250.11 A6
Examples of actions that might be safeguards to address such threats created by offering or accepting such an inducement include:
-
Being transparent with senior management or those charged with governance of the employing organization of the professional accountant or of the counterparty about offering or accepting an inducement.
-
Registering the inducement in a log maintained by the employing organization of the accountant or the counterparty.
-
Having an appropriate reviewer, who is not otherwise involved in undertaking the professional activity, review any work performed or decisions made by the accountant with respect to the individual or organization from which the accountant accepted the inducement.
-
Donating the inducement to charity after receipt and appropriately disclosing the donation, for example, to those charged with governance or the individual who offered the inducement.
-
Reimbursing the cost of the inducement, such as hospitality, received.
-
As soon as possible, returning the inducement, such as a gift, after it was initially accepted.
Immediate or Close Family Members (R250.12 to 250.14 A2)
R250.12
A professional accountant shall remain alert to potential threats to the accountant's compliance with the fundamental principles created by the offering of an inducement:
-
By an immediate or close family member of the accountant to a counterparty with whom the accountant has a professional relationship; or
-
To an immediate or close family member of the accountant by a counterparty with whom the accountant has a professional relationship.
R250.13
Where the professional accountant becomes aware of an inducement being offered to or made by an immediate or close family member and concludes there is intent to improperly influence the behavior of the accountant or of the counterparty, or considers a reasonable and informed third party would be likely to conclude such intent exists, the accountant shall advise the immediate or close family member not to offer or accept the inducement.
250.13 A1
The factors set out in paragraph 250.9 A3 are relevant in determining whether there is actual or perceived intent to improperly influence the behavior of the professional accountant or of the counterparty. Another factor that is relevant is the nature or closeness of the relationship, between:
-
The accountant and the immediate or close family member;
-
The immediate or close family member and the counterparty; and
-
The accountant and the counterparty.
For example, the offer of employment, outside of the normal recruitment process, to the spouse of the accountant by a counterparty with whom the accountant is negotiating a significant contract might indicate such intent.
250.13 A2
The application material in paragraph 250.10 A2 is also relevant in addressing threats that might be created when there is actual or perceived intent to improperly influence the behavior of the professional accountant or of the counterparty even if the immediate or close family member has followed the advice given pursuant to paragraph R250.13.
Application of the Conceptual Framework
250.14 A1
Where the professional accountant becomes aware of an inducement offered in the circumstances addressed in paragraph R250.12, threats to compliance with the fundamental principles might be created where:
-
The immediate or close family member offers or accepts the inducement contrary to the advice of the accountant pursuant to paragraph R250.13; or
-
The accountant does not have reason to believe an actual or perceived intent to improperly influence the behavior of the accountant or of the counterparty exists.
250.14 A2
The application material in paragraphs 250.11 A1 to 250.11 A6 is relevant for the purposes of identifying, evaluating and addressing such threats. Factors that are relevant in evaluating the level of threats in these circumstances also include the nature or closeness of the relationships set out in paragraph 250.13 A1.
Other Considerations (250.15 A1 to 250.15 A3)
250.15 A1
If a professional accountant is offered an inducement by the employing organization relating to financial interests, compensation and incentives linked to performance, the requirements and application material set out in Section 240 apply.
250.15 A2
If a professional accountant encounters or is made aware of inducements that might result in non-compliance or suspected non-compliance with laws and regulations by other individuals working for or under the direction of the employing organization, the requirements and application material set out in Section 260 apply.
250.15 A3
If a professional accountant faces pressure to offer or accept inducements that might create threats to compliance with the fundamental principles, the requirements and application material set out in Section 270 apply.
Building Blocks Approach
Complying with Part 2 requires knowing, understanding and applying:
- Part 1 - The fundamental principles and the conceptual framework
- Part 2 - The provisions set out in a particular section that are relevant to the specific circumstance (Each 2xx section is also linked to 200)
The IESBA has applied a building blocks approach in establishing the structure of the Code. The conceptual framework set out in Part 1, Section 120, applies to all professional accountants (PAs) and is not repeated in subsequent Parts or sections but is expected to be applied by all PAs in the conduct of professional activities.
As an illustration of the building blocks approach:
- In all situations, paragraphs 120.8 A1 to 120.8 A2 of the conceptual framework identify conditions, policies and procedures that might be "factors relevant to evaluating the level of threats."
- Incremental application material for evaluating threats is provided for professional accountants in business (PAIBs) in paragraphs 200.7 A1 to 200.7 A3.
- Incremental context-specific factors are then included in each section and in each Part of the Code to emphasize the factors that are relevant to evaluating the level of the threat created by the specific circumstance.
Building Blocks Approach
Complying with Part 2 requires knowing, understanding and applying:
- Part 1 - The fundamental principles and the conceptual framework
- Part 2 - The provisions set out in a particular section that are relevant to the specific circumstance (Each 2xx section is also linked to 200)
The IESBA has applied a building blocks approach in establishing the structure of the Code. The conceptual framework set out in Part 1, Section 120, applies to all professional accountants (PAs) and is not repeated in subsequent Parts or sections but is expected to be applied by all PAs in the conduct of professional activities.
As an illustration of the building blocks approach:
- In all situations, paragraphs 120.8 A1 to 120.8 A2 of the conceptual framework identify conditions, policies and procedures that might be "factors relevant to evaluating the level of threats."
- Incremental application material for evaluating threats is provided for professional accountants in business (PAIBs) in paragraphs 200.7 A1 to 200.7 A3.
- Incremental context-specific factors are then included in each section and in each Part of the Code to emphasize the factors that are relevant to evaluating the level of the threat created by the specific circumstance.
Inducements Basis for Conclusions (July 2018)
Flowchart Inducements offered by or to a professional accountant
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Inducements Basis for Conclusions (July 2018)
Definition
The IESBA reaffirmed that it is important to avoid presuming that all inducements have a negative connotation. Accordingly, it determined that the description of an inducement should clearly convey its neutral nature. With regard to whether to provide additional guidance on what an acceptable inducement is, the IESBA determined that it would be difficult to describe such an inducement in the Code as it will depend on the circumstances. For instance, a small gift that is acceptable in one context might not be acceptable under a different set of circumstances.
The IESBA also noted that even a small gift or gesture of hospitality, such as a cup of coffee at a client’s offices, could be argued to be a means to influence the behavior of the recipient, albeit only to engender a positive working relationship. Accordingly, a PA must apply professional judgement when determining whether an object, situation or action, such as a gift, hospitality or a commercial opportunity, falls within the Code’s definition of an inducement under a particular set of circumstances.
[Paragraph 16-17]
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Inducements Basis for Conclusions (July 2018)
Definition
The IESBA reaffirmed that it is important to avoid presuming that all inducements have a negative connotation. Accordingly, it determined that the description of an inducement should clearly convey its neutral nature. With regard to whether to provide additional guidance on what an acceptable inducement is, the IESBA determined that it would be difficult to describe such an inducement in the Code as it will depend on the circumstances. For instance, a small gift that is acceptable in one context might not be acceptable under a different set of circumstances.
The IESBA also noted that even a small gift or gesture of hospitality, such as a cup of coffee at a client’s offices, could be argued to be a means to influence the behavior of the recipient, albeit only to engender a positive working relationship. Accordingly, a PA must apply professional judgement when determining whether an object, situation or action, such as a gift, hospitality or a commercial opportunity, falls within the Code’s definition of an inducement under a particular set of circumstances.
[Paragraph 16-17]
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Inducements Basis for Conclusions (July 2018)
Bribery and Corruption
The IESBA reaffirmed that the provision related to illegal inducements serves the important objective of reminding PAs of their responsibility to comply with laws and regulations that prohibit the offering or accepting of inducements in certain circumstances, especially those involving bribery and corruption. The IESBA, therefore, determined that this provision should not be removed even though the requirement to comply with laws and regulations is more broadly covered under the fundamental principle of professional behavior in the Code.
[Paragraph 30]
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Inducements Basis for Conclusions (July 2018)
Intent test
The IESBA reaffirmed that the intent test is the appropriate test. In response to respondents’ concerns, the IESBA noted the following:
- Intent is an important element in determining whether an inducement might create threats to compliance with the fundamental principles, particularly integrity, objectivity and professional behavior. In this regard, the IESBA determined that offering or accepting an inducement where a PA concludes there is intent to improperly influence behavior would in all cases breach the fundamental principle of integrity (see paragraph 250.9 A2)
[Paragraph 27]
Prohibition
The IESBA reaffirmed that all inducements made with improper intent should be prohibited, even if they are trivial and inconsequential.
Whilst the offering or accepting of an inducement with improper intent will always result in a breach of the principle of integrity, the IESBA noted that such action might lead to a breach of other fundamental principles, in particular the principle of professional behavior, but not necessarily in all cases. Whether there would be a breach of the principle of professional behavior in particular will depend on the specific facts and circumstances, including the nature and significance of the inducement.
With regard to the concerns about undue burdens being placed on PAs by scoping in inducements that are trivial and inconsequential, the IESBA believes that the requirement to consider the intent of such an inducement should not result in any significant increase in the PA’s workload as the consideration involved should be relatively straightforward. This is especially so given that the likelihood of a trivial and inconsequential inducement being made with improper intent should be low particularly if it is part of the business, social or cultural norm. In many instances, appropriate policies can also be tailored to meet the specific circumstances most often encountered.
The IESBA did not consider it necessary to define the term “trivial and inconsequential” in the Code as the words “trivial” and “inconsequential” are generally understood within their dictionary meanings. The IESBA also noted that the term has been used for a long time already in the provisions of the Code.
[Paragraphs 34-37]
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Inducements Basis for Conclusions (July 2018)
Meaning of “Improperly Influencing Behavior”
The IESBA noted that, whilst individuals who are not PAs are not subject to the requirements of the Code, it is nonetheless still appropriate for a PA to determine if an inducement will cause an individual who is not a PA to act unethically as viewed through the lens of the fundamental principles.
The IESBA noted that an inducement might influence not only the recipient, but also other individuals, such as business partners or family members, who have some relationship with the recipient. The IESBA agreed that these other individuals should be explicitly included within the scope of the prohibitions of inducements with improper intent (paragraphs R250.7 and R250.8). Such other individuals may be the PA assessing the inducement. If the other individual is not the PA, that person must have some relationship with the recipient to be within scope.
[Paragraph 40-41]
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Inducements Basis for Conclusions (July 2018)
Further Actions to Consider
A respondent was of the view that where an inducement is offered with intent to improperly influence behavior, threats to compliance with the fundamental principles might still be created even if the PA complied with the prohibitions in the Code not to offer or accept, or encourage others to offer or accept, such inducement.
The IESBA agreed with this view and noted that this point was addressed in paragraph 350.4 of the extant Code. Accordingly, the IESBA has added application material to recognize it and indicate what actions might be appropriate as safeguards to address the threats, in addition to the need for the PA to comply with the requirements in R250.7 and R250.8 (see paragraphs 250.10 A1-A2). Similar provisions have also been added to the subsection relating to immediate or close family members.
[Paragraph 48-49]
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Inducements Basis for Conclusions (July 2018)
Applying the Conceptual Framework
The IESBA considered whether it was necessary to note explicitly that threats might be created due to the influence that an inducement might have on individuals other than the recipient. The IESBA concluded that the application of the conceptual framework is not constrained in any way and, therefore, a PA would have to consider threats from any inducement with which the PA was associated. This is in contrast to paragraphs R250.7 and R250.8 which are focused on particular types of inducement targeted at specified individuals. So for example, if the business partner of the PA was offered an inducement which the PA concluded was not made with any intent to improperly influence either the business partner or the PA, the PA would still need to consider if threats to the PA’s compliance with the fundamental principles might be created.
Finally, the IESBA accepted to clarify that if an inducement without improper intent is trivial and inconsequential, any threats created as a result will be at an acceptable level (see paragraph 250.11 A2). As such, a PA will not need to apply the conceptual framework in that instance.
[Paragraph 53-54]
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Inducements Basis for Conclusions (July 2018)
Addressing Threats
The IESBA also considered the comments received regarding the examples of actions that might be safeguards and made revisions as appropriate. In this regard, the IESBA also added three new examples on being transparent with senior management, reimbursing the cost of an inducement and returning the inducement. The IESBA also noted that inclusion of actions in the lists of examples did not imply that they would be safeguards in all circumstances but simply that they might be so in some circumstances.
[Paragraph 59]
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Inducements Basis for Conclusions (July 2018) Appendix 2 Flowchart: Inducements offered by or to an immediate or close family member
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Immediate or Close Family Members
The IESBA considered whether the scope of a PA’s responsibility should be expanded to include wider family members, related parties or individuals who are in business with the PA or who are the immediate or close family member of a counterparty or client.
The IESBA reaffirmed that the scope should be limited to immediate and close family members of the PA as the Code would require the PA to take positive action to discourage the offering or accepting of inducements made with improper intent. In this regard, the IESBA noted the need to strike an appropriate balance regarding how far a PA’s responsibilities should be expanded in the Code. The IESBA also noted that inducements offered to or by an individual other than a close or immediate family member of the PA would be sufficiently covered by other requirements.
Knowledge Required
The IESBA reaffirmed that the term “remain alert” strikes an appropriate balance between the extremes of requiring the PA to assume an active monitoring responsibility and willfully ignoring circumstances that might create threats to compliance with the fundamental principles. The IESBA noted that whilst the PA is required to continually be observant of the relevant circumstances that might create threats to compliance with the fundamental principles, the Code does not demand comprehensive knowledge of such situations or require the PA to actively seek out information the PA is unlikely to obtain otherwise.
[Paragraph 66]
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Inducements Basis for Conclusions (July 2018)
Closeness of a relationship
The IESBA reaffirmed that the term “closeness of a relationship” is intended to cover the degree of connection between the two parties in the relationship. The IESBA noted that the concept of closeness of a relationship is already used elsewhere in the Code and therefore did not consider additional clarification to be necessary. The IESBA believes that this aspect of a relationship, in addition to the nature of the relationship, is an important element in determining the intent behind an inducement as well as the level of threats created.
[Paragraph 72]
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