Professional and business relationships are governed by a set of standards that ensure rapport, responsible behavior, and the ability to safely interact in these relationships without loss or damage to either party.
Auditing is a trusted profession around the globe and for this reason, the ACCA has assembled a set of guiding principles known as the ACCA Code of Ethics. These principles are the foundation of all business interactions and ensure that auditors maintain professional knowledge throughout their careers.
Professional or business judgments that can cost a company millions or have ethical and social consequences must be made by professionals prepared to uphold the highest ethical and moral standards.
In this article, we discuss the code of ethics that guides audit and assurance practices by discussing the five fundamental principles and elaborating on the content of our ACCA AA course.
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Principle 1: Integrity
In financial auditing, integrity stands as a cornerstone principle, vital not only for the auditor's credibility but also for the trustworthiness of the entire financial reporting process. A client should receive a competent professional service from an auditor at all times as dictated by the International Ethics Standards Board.
For students of ACCA Audit and Assurance (AA), understanding and embodying integrity is crucial. Integrity, in its essence, involves upholding honesty and moral soundness in all professional activities. It demands auditors to be straightforward and honest in their professional and business relationships. This principle ensures that financial statements and other audit reports are dependable and free from bias or misleading information.
What it looks like in the real world
The practical application of integrity in auditing involves several key aspects. Firstly, auditors must exhibit fairness and truthfulness in all their professional dealings. This includes accurately presenting audit findings, regardless of external pressures or personal biases. It means being honest about one's capabilities and recognising the need for expertise when encountering complex audit scenarios.
In situations where an auditor faces ethical dilemmas, such as discovering financial misstatements or being pressured to overlook discrepancies, integrity calls for courage and ethical fortitude. It's here that auditors must stand firm in their ethical convictions, ensuring that their actions and reports reflect the true financial state of the entity being audited.
For ACCA AA students, grasping the principle of integrity and its application in real-world scenarios can be challenging. This is where targeted tuition can be invaluable.
With experienced tutors who bring real-world auditing scenarios into the classroom, students can learn how to navigate complex ethical situations with confidence and proficiency.
Principle 2: Objectivity
Objectivity in the field of auditing is a fundamental principle. It mandates a professional accountant to maintain an unbiased mindset and make decisions based purely on factual evidence, free from personal bias or influence from others. This principle is essential to ensure that an auditor’s judgment is not compromised and that their decisions are made solely based on professional competence.
What it looks like in the real world
In practice, objectivity involves several key aspects. Professional accountants must approach each audit with a fresh perspective, evaluating evidence with an independent mindset. This means being alert to situations that could potentially bias judgment, such as personal relationships or financial interests in the entity being audited.
For example, an auditor with a financial stake in a client’s business might find it challenging to remain impartial when auditing that client. The personal advantage gained from a favorable audit could tempt the auditor to present a financial picture that is not accurate. In such scenarios, maintaining objectivity requires either avoiding these conflicts of interest or, where this is not possible, disclosing them and ensuring that they do have undue influence on audit decisions.
Another critical aspect of objectivity is dealing with pressure, whether from the audited entity, management, or other external sources. Auditors must resist these pressures and remain steadfast in their commitment to unbiased and fact-based auditing. This includes situations where there may be pressure to modify audit opinions or overlook certain discrepancies for the benefit of the client or other parties.
Principle 3: Professional Competence and Due Care
Professional competence and due care form a foundational pillar in the field of auditing and are crucial elements in the ACCA Audit and Assurance (AA) curriculum. This principle emphasises the necessity for auditors to maintain and continuously improve their knowledge and skills, ensuring that they provide services with due care, diligence, and skill.
In an ever-evolving financial landscape, the demand for auditors to stay abreast of changes in laws, regulations, and industry practices is not just a professional requirement but a duty to the clients and the public.
Providing professional services begins with a solid foundational knowledge, which includes an understanding of accounting principles, audit standards, the proper and specific authority held by auditors, and relevant laws and regulations.
Due care, on the other hand, relates to the application of applicable technical knowledge with carefulness and diligence. It involves being thorough and meticulous in audit work, ensuring that nothing significant is overlooked and that audit conclusions are based on a complete understanding of the facts. Due care also means recognising one’s own limits of competence and seeking additional information or expertise when necessary.
Balancing professional standards with due care involves a commitment to ongoing education and self-improvement. This ongoing pursuit of knowledge and skills can feel daunting for students of ACCA. What can VIVA do to help?
- Provide a structured learning pathway
- Offer real-life examples and case studies explained by tutors who have experience in auditing
- Facilitate discussions and webinars that allow the latest developments, practices and technologies to be highlighted and discussed
In summary, the principle of professional competence and due care is about more than just possessing knowledge; it's about the ongoing development of that knowledge and its careful application. For ACCA AA students, understanding and implementing this principle is key to their success in both examinations and their future careers.
Principle 4: Confidentiality
Confidentiality is the legal or professional right of the client to have their sensitive financial information, insider knowledge, and corporate secrets safely protected by the auditor. Upholding confidentiality ensures that this trust is never compromised. This is the cornerstone of the ethics and conduct principles.
In practical terms, confidentiality means that auditors must act diligently to keep all client information private. This includes financial statements, internal controls, employee data, and any other confidential records.
Ethical and Legal Aspects
Confidentiality extends beyond professional ethics; it is also enshrined in laws and regulations. Auditors are bound by a legal duty to maintain the confidentiality of client information. Breaching this duty can result in legal consequences, damage to reputation, and a loss of trust.
Confidentiality is not a passive principle. Auditors must actively implement measures to ensure the security of information. This involves:
- Secure Storage: Data must be stored securely, both physically and electronically, with access restricted to authorised personnel only.
- Access Control: Auditors must implement strict access controls to prevent unauthorised personnel from accessing sensitive information.
- Communication: When communicating sensitive findings or reports, auditors should use secure channels to protect the information from interception.
- Data Disposal: Proper disposal methods for sensitive documents must be followed to prevent information leaks.
While maintaining confidentiality is essential, auditors also need to navigate situations where there may be a legal or professional duty to disclose information. This often arises when auditors uncover fraud or illegal activities within the audited entity.
In such cases, auditors must carefully consider their ethical responsibilities, legal obligations, and the potential consequences of disclosure. It is a delicate balance between maintaining confidentiality and acting in the public interest.
Principle 5: Professional Behavior
This principle underscores the importance of acting in a manner consistent with the public interest and upholding the reputation of the accounting profession. For ACCA AA students, understanding and adhering to this principle is not just about passing exams; it's about laying the groundwork for a career marked by ethical excellence and public trust.
The essence of professional behaviour includes compliance with relevant laws and regulations, avoiding any conduct that discredits the profession, and handling conflicts of interest appropriately. This means that auditors must be aware of the legal and regulatory framework within which they operate and ensure that their conduct, both in and out of the professional setting, does not undermine their professional standing or that of the wider accounting community.
In practice, professional behavior involves several key elements:
- Respect for Professional Standards: This includes adhering to the technical and ethical standards set by the ACCA and other regulatory bodies. Auditors must stay updated with these standards and apply them diligently in their work.
- Conflict of Interest Management: Auditors must identify and manage conflicts of interest, ensuring they do not compromise their objectivity and professional judgment. This includes being transparent about potential conflicts and taking steps to mitigate them.
- Professional Discretion: Auditors often handle sensitive information. Professional behaviour dictates that they should exercise discretion and avoid sharing confidential information improperly.
- Responsibility to the Public: Auditors have a duty to the public. Their reports and audits help stakeholders make informed decisions. Therefore, auditors must ensure that their work is accurate, fair, and devoid of any misleading information.
Your future is secure with VIVA's award-winning online tuition
As you embark on your journey to master these principles, VIVA is here to support your growth. We offer a structured learning pathway, real-life examples, and case studies explained by experienced tutors who have navigated the complexities of auditing. Our facilitated discussions and webinars highlight the latest developments, practices, and technologies in the field.
Are you ready to take the next step? Visit our course page here and enroll in our ACCA AA course to embark on your journey toward a rewarding career in audit and assurance. Your future in auditing awaits with VIVA.
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