Principles, threats and professional judgement

Find the right part of the Code

The study guide uses the December 2022 compiled APES 110. Part 1 establishes the principles and conceptual framework for members generally. Part 2 addresses members in business, including relevant employment relationships of members in public practice. Part 3 addresses public practice. Parts 4A and 4B add independence requirements for audit and review engagements, and other assurance engagements respectively.

An accountant can need more than one part. A practice partner considering pressure on an employee should not assume that the public-practice label makes the employment provisions irrelevant. Start with the nature of the activity, the person's role and the engagement, then identify all relevant requirements.

Requirements are marked with R; application material is marked with A. Australian additions use AUST. Read application material with the requirement it explains. It helps apply the Code but does not provide permission to disregard a prohibition. The version linked here is the historical edition named in the guide, rather than a claim about the most recent professional rules.

Concept sources: APES 110, December 2022 compiled edition — Guide to the Code, Parts 1–4B and the Australian requirements.

Integrity and objectivity protect different things

Integrity concerns honest and straightforward professional dealings. It includes avoiding knowing association with materially misleading information, reckless information or misleading omissions. Discovering an issue after a report is prepared creates a need to address the association; having been unaware earlier does not justify continued silence.

Objectivity concerns the quality of judgement. Bias, conflicting interests, pressure or undue reliance on another person or technology can compromise it. An accountant need not deliberately lie for objectivity to be at risk. A forecast can be sincerely believed and still reflect unchallenged optimism caused by a personal incentive.

Competence, care and professional behaviour

Professional competence and due care involve obtaining and maintaining relevant capability and performing work diligently. The relevant question is not simply whether a person holds a qualification. Consider the task, recent developments within the guide's context, available time, supervision and access to expertise. Explain significant limitations to those using the work.

Professional behaviour includes compliance with applicable laws and regulations and avoiding conduct that discredits the profession. Marketing must not rely on exaggerated capability or unsupported comparisons. A strong sales pitch does not justify representing unfamiliar work as an established specialism.

These principles work together. A highly competent accountant who deliberately conceals an error has an integrity problem. An honest accountant who accepts work without the capacity to perform it properly has a competence and care problem. “No dishonest intention” is not a complete defence of poor professional work.

Confidentiality requires controlled judgement

Confidentiality protects information acquired through professional and business relationships. It extends beyond the duration of an engagement and is relevant to prospective relationships, casual conversations and information used for personal or third-party advantage. Sharing identifying facts with a friend can be improper even without publishing a document.

It is not an absolute instruction never to disclose anything. The Code recognises circumstances involving legal requirements, appropriate authority and professional duties or rights. Before disclosure, establish the basis, who is entitled to receive the information, whether the facts are sufficiently established, and what information is necessary. A professional permission is not automatically immunity from contractual or legal consequences.

For study purposes, connect confidentiality to the later NOCLAR topic. Do not jump from “there may be wrongdoing” to “post all the evidence publicly”. The recipient, timing, applicable law and relevant professional provisions matter. The Australian application material advises legal advice when considering disclosure without consent; it should not be misdescribed as a universal statutory protection.

Principles describe duties; threats explain the pressure

The five threat categories describe ways compliance may be undermined. They are not additional principles and are not automatically proof of a completed breach. More than one can arise from the same circumstances.

In a case answer, write the causal connection. “Self-interest” alone earns little understanding. Explain the interest, the judgement it could influence and the principle placed at risk.

Identify and evaluate with an inquiring mind

The framework begins by identifying threats, then evaluating whether they are at an acceptable level. Obtain sufficient understanding of the facts, question inconsistencies and remain alert to missing information. Assess both qualitative and quantitative factors. An amount small to a large company may be important to the individual receiving it.

The reasonable and informed third-party test provides a disciplined perspective. Consider what a suitably informed person would likely conclude about compliance after weighing the relevant facts. It is not a poll of colleagues and does not ask whether an uninformed stranger is suspicious. Nor does it require that every conceivable concern be reduced to zero.

Training, governance and organisational procedures may affect the assessment, but their existence does not establish that a particular threat has been resolved. A policy that staff fear using may offer little practical protection. Consider threats together and reassess when responsibilities, incentives or other facts change.

Address the cause and check the result

Where a threat is not acceptable, the response may eliminate the circumstance creating it, apply an effective safeguard, or decline or end the relevant activity. A safeguard is useful because of what it achieves in the circumstances, not because its name appears in a list.

For Fernline, an independent review by someone with relevant expertise and authority could challenge the estimate. Merely asking a subordinate who shares the same bonus target to sign a form would be much weaker. Removing the analyst from the decision or changing the incentive may address the source of the threat more directly.

Specific prohibitions still apply. Consent, a second signature or a declaration of interest does not make a prohibited activity permissible. Document the facts, reasoning, consultations and conclusion as appropriate, including any specific documentation requirement. After implementation, ask whether the response actually restored compliance.

Practice: a trusted forecasting tool

Fernline's manager says the renewal model has always been reliable and asks the analyst to ignore a newly lost customer. The analyst wants to protect their bonus and avoid upsetting the manager.

Analysis: The bonus creates self-interest; the instruction creates intimidation; confidence in a familiar model may contribute to uncritical reliance. Integrity and objectivity are at risk, and competence and care are relevant to the quality of the forecast. Verify the customer information, assess the model's assumptions and present a supported estimate. Seek an independent challenge and use the appropriate escalation route if pressure remains.

Self-check: Would telling the manager about the bonus resolve the issue? The manager already knows about it and is applying pressure. Disclosure alone would not address the misleading assumption or provide independent review.

Sources and further reading

Study-guide reading: CPA Australia, Ethics and Governance, fourth edition, November 2023, Module 2, printed pages 67–80. Study the Code's structure, fundamental principles, threats and conceptual framework together.

• APES 110, December 2022 compiled edition: Guide to the Code, sections 110–120 and the introductions to Parts 2 and 3.