Code of Ethics for Professional Accountants – proposals to address conflicts of interest

In December 2011, IFAC's International Ethics Standards Board for Accountants (IESBA) issued a 26-page exposure draft called Proposed Changes to the Code of Ethics for Professional Accountants Addressing Conflicts of Interest. Comments were requested by March 31, 2012. As of April 10, 2012, there were 47 Submitted Comment Letters. The exposure draft proposed changes to various sections in the Code of Ethics for ProfessionalAccountants (the Code) related to provisions addressing conflicts of interest. The aim is to provide more comprehensive guidance for identifying, evaluating and managing conflicts of interest.

The Code contains two sections that address conflicts of interest, Section 220 for professional accountants in public practice and Section 310 for professional accountants in business. Section 220 states that a professional accountant shall take reasonable steps to identify circumstances that could pose a conflict of interest, and that such circumstances may create threats to compliance with the fundamental principles. The section also states that a professional accountant shall evaluate the significance of threats and apply safeguards to eliminate them or reduce them to an acceptable level. Potential safeguards are provided in the section and it is stated that, depending on the circumstances giving rise to the conflict, obtaining consent from all relevant parties is generally necessary. If threats to the fundamental principles cannot be eliminated or reduced to an acceptable level or consent is refused by the client, the professional accountant shall not accept a specific engagement or shall resign from one or more conflicting engagements.

Section 310 of the Code describes a professional accountant’s responsibility to an employing organization and professional obligations to comply with the fundamental principles. Certain examples are provided of where these two requirements might be in conflict and certain pressures a professional accountant in business may face. The section provides examples of safeguards that may be applied to reduce the threats to the fundamental principles that might arise from a conflict of interest.

Failure to identify and address conflicts of interest on a timely basis may result in an accountant having to withdraw from an arrangement at a point in time where the affected parties have insufficient time to effect an orderly transition to an alternative service provider.