Ethics and professional judgement

Ethics begins with the public interest

An accountant's work can influence people who never chose or paid the accountant. Ethical analysis therefore considers the reliability of the work and the interests of affected users, alongside the client's instructions. A technically available accounting treatment does not automatically make every way of promoting or applying it ethical.

In the study-guide edition, Part 1 of the Code establishes the principles and conceptual framework; Part 2 addresses accountants in business; Part 3 addresses public practice. Part 4A covers audit and review independence. Part 4B covers other assurance. It does not cover non-assurance engagements generally. Public practitioners also use Part 2 when carrying out activities arising from their relationship with their own firm.

Concept sources: Exploring the IESBA Code — The Building Blocks Installment — IFAC/IESBA explanatory publication, hosted by ICAP; structure and public-interest responsibility.

Five principles, five questions

The principle identifies the professional duty. The threat identifies what might prevent the accountant from fulfilling it. Keep those two ideas separate in a written answer.

Concept sources: Exploring the IESBA Code — The Five Fundamental Principles — IFAC/IESBA explanatory publication; original study questions above.

Identify the mechanism of the threat

More than one threat can arise from the same fact. A valuable client may create self-interest because the firm wants its fees and intimidation because management threatens dismissal. Naming both is useful only when the answer explains both mechanisms.

Self-interest

A benefit or loss could pull the accountant towards a preferred conclusion.

Self-review

The accountant may be reluctant to challenge earlier work on which the present conclusion depends.

Advocacy

Promoting a position can make impartial evaluation harder.

Familiarity

Closeness or long association can weaken challenge.

Intimidation

Actual or perceived pressure can discourage an appropriate professional response.

Concept sources: Exploring the IESBA Code — Identifying Threats — IFAC/IESBA explanatory publication, hosted by ICAP; five threat categories and context-sensitive identification.

Evaluate before proposing a safeguard

Do not treat a threat as automatically acceptable because nobody has complained. Consider who is involved, what influence they have, the significance of the interest and the circumstances known at the decision date. The reasonable and informed third-party test asks whether an impartial, knowledgeable observer could reach the same conclusion.

Concept sources: Exploring the IESBA Code — Evaluating Threats — reasonable and informed third-party test.

A useful study sequence is to connect the fact to its effect, then test the proposed response. A policy that merely says “be independent” does not explain how this particular pressure will be removed. A reviewer helps only when their position and work actually address the relevant concern.

Concept sources: Exploring the IESBA Code — Addressing Threats — elimination, effective safeguards and withdrawal; original learning sequence.

Judgement, scepticism and evidence

Judgement applies professional knowledge to decisions. Scepticism questions evidence, including contradictions and reliability concerns. Familiarity with honest management cannot justify ignoring conflicting information.

Concept sources: ASA 200 — Overall Objectives of the Independent Auditor — paragraphs 13(k)–(l), 15–16 and A21–A30; original example.

Competence and an inquiring mind

Competence is more than possessing a qualification. The engagement requires the right knowledge and skills for its actual subject matter, supported by careful work. A learning need should trigger training, consultation, closer supervision or suitable specialist involvement. Identifying the gap early allows the team to respond before weak work becomes the basis for a conclusion.

An inquiring mind means staying open to relevant information and recognising the influence of bias and culture. In study answers, explain the behaviour required: seek the missing fact, question an unsupported assumption or obtain a more informed perspective. Simply promising to be “more professional” is too vague to show how the problem will be solved.

Concept sources: Amendments to the Code to promote the role and mindset expected of accountants — APESB's introductory technical update; inquiring mind, professional judgement, bias and culture. The Five Fundamental Principles — competence and due care.

Responding to suspected non-compliance

NOCLAR means non-compliance with laws or regulations. The response depends on the accountant's role and the nature of the matter. Understand the facts, raise them at the appropriate management or governance level, assess the response and decide whether further action is necessary. Consider legal reporting obligations, restrictions on disclosure, potential harm and confidential professional advice. Withdrawal does not itself settle every responsibility.

Confidentiality therefore requires analysis, rather than either automatic silence or automatic public disclosure. The record should explain what was found, who was consulted, management's response, options considered and the reasoning for the action taken.

Concept sources: Responding to Non-Compliance with Laws and Regulations — APESB/AUASB educational presentation, slides 12 and 16–22; restructured Code section 360 covers public practice.

Australian links between ethics and technical standards

APES 210 requires members to comply with auditing and assurance standards and consider relevant guidance. It connects public-interest obligations, independence and competence to assurance work. Where the firm lacks the required expertise, obtaining suitable external help is an option; inability to obtain that help requires declining the engagement.

Concept sources: APES 210 — Conformity with Auditing and Assurance Standards — July 2019 standard, paragraphs 3.1–5.1.

ASA 102 requires relevant ethical compliance by auditors, assurance practitioners, engagement quality reviewers and firms. Its Australian definition connects applicable APES 110 requirements with the Corporations Act and other applicable law. Ethical compliance is therefore part of the engagement requirements, rather than an optional professional courtesy.

Concept sources: ASA 102 — Compliance with Ethical Requirements — March 2023 compilation, paragraphs 5(d) and 6.

Sources and further reading

APES 110 — June 2023 compilation supplies the Australian requirements used here. ASA 102 — March 2023 compilation connects relevant ethical requirements to AUASB engagements.