Understand the codes of ethics and professional standards that set our expectations of professional conduct and behaviour Show
APESB has made changes to APES 110 (applicable to all members except members in NZ) to reflect the role and mindset expected of members. Find out more
The NZ Regulatory Board has made changes to the NZ Code of Ethics to reflect the role and mindset expected of members. Find out moreMembers in Australia are expected to observe the Australian Professional and Ethical Standards Board (APES) 110 – Code of Ethics for Accounting Professionals. Member conduct in New Zealand is similarly governed by the NZICA Codes of Ethics. These standards are used to assess a member’s professional conduct in the event of a complaint by a client or third party. A failure to meet the standard may result in disciplinary proceedings. Therefore, there is a significant duty imposed on members to ensure they comply with these standards. The fundamental principles in both codes are:
Both codes mirror the standard expected of an accounting professional in: Public Practice
Business
Members in New Zealand undertaking audit and assurance work also need to adhere to the professional and ethical standards issued by the Auditing and Assurance Standards Board including the Code of Ethics for Assurance Practitioners. Access the standards onlineThe NZICA Code of Ethics and APES 110 are both available in your Member Handbook. The NZ Code of Ethics for Assurance Practitioners is available on the External Reporting Board's (XRB) website. NZ Assurance Code of Ethics Standard setters for Australia (and other members resident outside NZ)The Accounting Professional and Ethical Standards Board (APESB) sets the Code of Ethics and professional standards for Chartered Accountants ANZ, CPA Australia and IPA members. The standards apply wherever members are located, except when prevented from so doing by specific requirements of local laws and/or regulations. Standard setters for New ZealandThe New Zealand Regulatory Board of the New Zealand Institute of Chartered Accountants (NZICA) sets the professional and ethical standards applicable to members resident in New Zealand.
Here we look into distinguishing the difference between the two ethical concepts of independence and objectivity.
These ethical concepts have always enjoyed an element of interaction. In ICAEW’s 1987 Guide to Professional Ethics (now known as the Code of Ethics) the Statement on Professional Independence described it as a ‘concept fundamental to the accountancy profession’ and ‘an attitude of mind characterised by integrity and an objective approach’. This clearly explains objectivity as being part of independence. In ICAEW’s 1997 Guide to Professional Ethics Statement 1.201 on Integrity, Objectivity and Independence referred to Objectivity as ‘independence of mind’. Other more recent comments on the interaction have included independence being considered as ‘a measure of objectivity’, or to independence ‘enabling’ an objective conclusion. As we can see there is an element of circularity here. Here we set out an analysis of current definitions, provide some practical illustrations of how they currently interact and share ICAEW’s thoughts on independence, drawing attention to ICAEW’s principles-based framework for resolving ethical problems.
In the current IESBA Code of Ethics 120.1 Objectivity ‘imposes an obligation on all professional accountants not to compromise their professional or business judgement because of bias, conflict of interest or the undue influence of others’. The current IESBA Code of Ethics definition of Independence explains it as being made up of two elements: ‘Independence of mind’ and ‘independence of appearance’. The former is still defined to include integrity, objectivity and scepticism. The latter is defined as being free from ‘facts and circumstances’ that would lead a reasonable and informed third party to conclude that integrity, objectivity or scepticism was compromised. This has been the extant definition for a number of years which perhaps explains why auditor independence is now largely viewed through the lens of compliance, with detailed rules to be followed rather than a more principles based threats and safeguards approach. Indeed, in contrast to what the 1987 document suggests, independence is now something that is only really a relevant consideration for an auditor or assurance provider, with the rest of profession concerned with objectivity.
As indicated above, independence has very much become a matter of regulatory compliance, where a checklist approach such as that illustrated below tends to be adopted to ensure that the auditor is free from (or at least manages) a prescribed list of circumstances under which independence is perceived to be compromised. The approach to auditor independence has increasingly become rules based rather than principles based. Objectivity, on the other hand, is much more concerned with reasons and motivations behind certain decisions or behaviour. It is concerned with internal thought processes rather than lists of prohibitions. As such a framework such as the ICAEW framework for resolving ethical problems is more suitable for assessing objectivity than a checklist. If we take the IESBA definition of independence, and regard objectivity and ‘independence of mind’ to be closely aligned (as was explicitly stated in early Guides to Professional Ethics) it stands to reason that both of the tools above are necessary to fully assess auditor independence.
(this is an example of an approach that has been adopted by some. It is not intended to be an exhaustive independence checklist and should not be treated as such).
The scenarios below illustrate the distinction (and interaction) between the concepts of independence and objectivity as defined by the IESBA Code of Ethics.
Auditor independence is, however, often an issue that finds its way into domestic legislation, and some countries take a slightly different (in some cases entirely rules based) approach. The different approach taken by countries to independence is illustrated in the following examples. The UK FRC Ethical Standard defines independence as ‘freedom from conditions and relationships which, in the context of an engagement, would compromise the integrity or objectivity of the firm or covered persons’ (paragraph I23). It is described as underpinning objectivity but sufficiently distinct from it being concerned with the circumstances surrounding the relationship rather than the auditor’s state of mind. This approach to independence is therefore very much more concerned with ‘independence of appearance’ rather than ‘independence of mind’, with a number of detailed regulatory requirements designed to ensure the former. In Japan, independence requirements derive from the Japanese Institute of Certified Public Accountants (JICPA) Code and statute. They lay out detailed rules concerning financial interests, personal interests, scope of non-audit services and rotation of audit partners. The JICPA supplements this with some self-regulatory provisions however overall compliance is assessed by reference to a rules based approach. The Swedish Auditors Act requires auditors to be independent, but the approach is very different and is much more principles based. The Act requires auditors to carry out a threats and safeguards analysis such that sufficient measures are taken to ensure that independence would not be questioned. There are five absolute prohibitions, far fewer than in the regulations of many other countries. The approach to auditor independence is therefore largely achieved through a principles based framework.
ICAEW advocates a framework approach to independence that:
In short, we believe that this represents a more rigorous means of ensuring auditor independence. The most effective way to ensure the reality of independence is to provide guidance centered around a framework of principles rather than a detailed set of rules that can be complied with to the letter but circumvented in substance. Absolute requirements and prohibitions only have a place where no acceptable safeguard could reasonably be applied. For example, a blanket prohibition on the provision of non-audit services to audit clients can be inefficient for the client and is neither necessary to ensure independence, nor helpful in contributing to the knowledge necessary to ensure the quality of the audit. |