How many times have we read articles of bankers taking huge risks with depositor's funds while engaging in unscrupulous acts which have absolutely nothing to do with their core business? I bet a number of people would also bear witness to having come across at least a story almost on a weekly basis about the embezzlement of money by some office bearers some of the high profile cases that have dominated the headlines on the international scene over the years. Zimbabwe has indeed not been spared as it has witnessed its own share of these horrendous acts. We have all seen and experienced corporate scandals of unimaginable proportions in the country. Century Bank, ENG Capital and more recently Interfin Bank Limited all exemplify the fall of organisations due to corporate misdemeanours. These scandals and deceitful acts have tainted the image of the accounting profession and consequently eroded the confidence of the stakeholders in particular. The upsurge in such cases has largely been blamed on the non-ethical behaviour of the people tasked with the stewardship of these organisations. In the desire of alleviating the occurrence of such incidences, the regulatory umbrella authorities of the accountancy profession, The International Federation of Accountants, IFAC and professional bodies such as The Institute of Chartered Secretaries and Administrators in Zimbabwe, ICSAZ have formulated professional codes of ethics for adoption by their members. The objective of this paper is to afford the writer a chance to give a brief background of the two bodies and then critically compare and contrast the codes of ethics or professional conduct of the afore-mentioned accounting bodies.
Background of IFAC
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The International Federation of Accountants is the worldwide organisation for the accountancy profession. Having been founded in the German city of Munich on the 7th of October 1977, according to the IFAC Handbook, its mission is to serve the public interest and continue to strengthen the worldwide accountancy profession and contributing to the development of strong international economies by establishing and promoting adherence to high quality professional standards, furthering the international convergence of such standards and speaking out on public interest issues where the profession's expertise is most relevant. It is therefore no coincidence that, as an organisation committed to the upholding and adherence of the values of integrity, transparency and expertise, IFAC has come up with the International Ethics Standards Board for Accountants, IESBA, which is tasked with the development and issuing of high quality ethical standards and other declarations for professional accountants for use around the world. The Code of Ethics for Professional Accountants, also known as the IESBA Code institutes the ethical requirements for professional accountants.
Background of ICSAZ
The Institute of Chartered Secretaries and Administrators, ICSAZ was originally founded in England in October 1891. According to the Members' and Students' Handbook of 2012, the first branch to be established outside the United Kingdom was in South Africa in 1957 known as Southern Africa Division and of which Zimbabwe was a part of. The Institute in Zimbabwe was incorporated on 1st January 1971 by an Act of Parliament through the Chartered Secretaries (Pvt) Act which generally prescribes the operations of the Institute in Zimbabwe, status of its members, relationship with Government and world at large. In the domain of ethics, ICSAZ has included in its core objectives the setting and promulgation of standards of excellence in propriety and best practice in the profession. Hence the ICSA, just like any other professional body, requires and expects its members to observe the highest standards of professional conduct and ethical behaviour in the discharge of their duties and mandates.
Ethics and Professional Codes of Ethics
According to Clarke et al (1988) ethics is concerned with what society considers to being either right or wrong. It therefore follows that ethics relates to standards of behaviour. Ethics lack that certainty usually provided by the law, as individuals may consider some things that are legal to be unethical. Ethical behaviour may be defined in terms of duties and consequences. Codes of conduct issued by professional bodies define responsibilities in terms of duties and may provide guidance on the more common exceptions that apply. The code of ethics is the heart and soul of any business or professional organisation. It sets the standard to which all business or professional activities of all its members are measured and it's the ultimate guide on how members of the organisation should act in connection with the performance of their duties and obligations. Likewise, it is the basis upon which disputes can be settled or decisions are to be made. A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. It is against this backdrop that a professional accountant's responsibility is not exclusively to satisfy the needs of an individual client or employer. In acting in the public interest a professional accountant should observe and comply with the requirements of professional codes of ethics.
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Since both IFAC through IESBA and ICSAZ have a similar ultimate goal of regulating the professional conduct of their members, it comes as no surprise that their professional codes would be more analogous than different. This is very evident for example in the way they both address the principles underpinning their codes in as far as members' exercise of integrity, honesty, diligence, professional competence and due care in the carrying out of their duties and responsibilities. However, differences are noted in the structuring approaches and the way the codes are presented.
Objectives set out in the Codes
The overriding goal of both codes is set upon the premise of members protecting the public interest rather than the furtherance of self-interest. To this end a professional is required to comply with the fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour in carrying out their assignments
Integrity is a principle that is reiterated in both codes. Integrity is a holistic term implying other values too. So in addition to being straightforward and honest in all professional and business relationships, this principle implies fair dealing and truthfulness. It particularly relates to reporting where a false or misleading statement might be made, or provided without care or attention, or a report might omit information, or be obscure and dense such that the report becomes misleading. Integrity also denotes an attitude of personal and professional consistency in the way in which the accountant acts. This entails not nurturing professional bias that ends up undermining the perception of the individual's integrity.
IFAC and ICSAZ codes share convergent views on the principle of objectivity. Objectivity is contrasted with subjectivity. Subjective decisions are taken from the point of view of the individual concerned, taking into account the things that matter only to them. These considerations might be friendship, loyalty or the instinct for self-preservation. While these subjective considerations are vital to making life go on, they have no place in professional decision-making. The accountant should assemble all the relevant information available, account for what is not available (rather than guessing), and base decisions only on that data and the guiding principles of the profession. This is of course easier said than done, because in the exercise of professional judgement, personal decision-making is the key. The accountant needs to be ever-vigilant, questioning himself whether other factors, such as self-interest or personal preference, are guiding a decision. Objective decision-making is the true value of the accountant within the management process, but it will frequently expose the accountant to difficult situations because others may not always like what they hear or appreciate a dispassionate analysis of a situation. Both codes highlight the importance of members avoiding putting themselves into positions where they or their work could become compromised. This might be through bias, conflicts of interest or through undue influence of others. If a threat to objectivity is identified, safeguards should be considered and applied to eliminate or reduce the threat to an acceptable level.
Professional Competence and Due Care
According to www.ifac.org and www.icsaz.co.zw both bodies advocate for professional competence and due care in the conduct of their members. Professional competence implies knowledge, skill, diligent delivery and an awareness of all the relevant issues in performing tasks. The professional is expected to maintain the competence and their capabilities to act at all times through continuing professional development.
There is also an expectation of acting diligently, which encompasses acting in accordance with the requirement of an assignment carefully, thoroughly and on a timely basis. Due care covers the wider responsibility the professional accountant has to ensure that those working under their authority have the necessary skills and capabilities to do so and in particular have the professional capacity and appropriate training and supervision.
The handbooks of IFAC and ICSAZ also highlight the principle of confidentiality as a requirement for their members. The professional is bound by the principle of confidentiality in all that they do unless required by law, professional right or duty to disclose. Such confidentiality covers disclosing information outside the firm or employing organisations and using information for personal or third party gain. Confidentiality extends to situations in a social environment too, where the professional accountant should be alert to the possibility of inadvertent disclosure to a close friend or family member.
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Confidentiality also extends after the end of a relationship between a professional accountant and a client or employer. The professional accountant may use prior experience but not prior information gained in a previous role.
Professional behaviour amongst their members is a common principle in both IFAC and ICSAZ. Every professional accountant needs to be mindful that their behaviour will not bring the profession into disrepute. IFAC and ICSAZ define these as actions which a reasonable and informed third party, having knowledge of all the relevant information, would conclude negatively and affect the good reputation of the profession.
It is a constant challenge to management to maintain a good reputation. Without it, an organisation be it a professional body, a company or a public sector body will become demoralised. Staff will not take pleasure in their work, the better qualified and able ones will leave and a downward spiral may develop. In addition, customers may be lost, the ability to raise finance made more difficult, and perhaps the licence to operate from society also lost with many other consequences brought to bear upon the organisation.
It is in the public interest and required by both IFAC and ICSAZ's bodies that those members of assurance engagement teams and their firms (and when applicable extended firms too) be independent of the assurance clients. There are two key attributes to independence used in connection with the assurance engagement and these are independence of mind and independence in appearance.
In independence of mind it is required that professional accountant has a state of mind that permits a conclusion to be expressed without being affected by influences that would compromise their professional judgement. This allows the individual to act with integrity and exercise objectivity and professional scepticism. Bias is a devious thing, and sometimes we are not fully aware of the influencing factors on our mind. Keeping a clear and professional attitude and focussing on objective information rather than over-relying on intuitions is a useful means of maintaining some independence of mind.
While independence in appearance is a test reliant on the view that a reasonable and informed third party would conclude that a member of the assurance team's integrity, objectivity or professional scepticism was compromised if significant facts and circumstances were avoided overlooked. The accountant often exercises judgements that have impacts on people's jobs, pay and progression. It is therefore of paramount importance that the exercise of professional judgement not only be just, but manifestly and undoubtedly be seen to be so.
The Charging of fees
The issue of fees in terms of the size of the fees and permissible ways of levying fees is handled in both the IFAC and ICSAZ codes. The threat to independence posed by over-reliance (construed to be over 15%) on one client for revenue is covered in the IFAC code. The ICSA code also reemphasises the importance of charging reasonable fees to clients in order to ensure independence.
Contingent fees are addressed in two sections of the IFAC code (that is in Sections 240 and 290). When assessing threats created by contingent fee arrangements for non-assurance services, the professional accountant may consider materiality of the fee to the firm or the client's financial statements. The ICSAZ code strictly prohibits the levying of charges on a contingent fee basis except under the circumstances set out in the sub-clause 5.4. The sub-clause which states that only in those few circumstances where fees cannot be realistically charged will it be permissible to go the contingent route as to require otherwise would ultimately deprive the client of professional assistance.
Handling of clients' money
Both the IFAC and the ICSAZ codes take a very stringent approach when dealing with the way members should address the issue of clients' money. Money that is left in custody of their members by clients should be handled separately from all the other cash that the member might have in the ordinary running of their business.
Section 6 of the ICSA code specifically prescribes that all money received on behalf of a client must be deposited promptly into separate bank account.
The conceptual framework approach versus the rule-based approach
As much as the two bodies seem to sing from the same page as far as the concepts highlighted above, the approach differ as the IFAC code is more principle based whereas the ICSAZ code is more rule based. Professional accountants are required to comply with fundamental principles of IFAC code and to determine their compliance with the fundamental principles whenever they know that circumstances or relationships may end up compromising their compliance. The code specifies in its Conceptual Framework the fundamental principles, threats and safeguards to be applied in that and the procedures always followed whenever any particular circumstance of interest arises.
On the other hand the ICSAZ code requires its members to follow the rules. It basically lays down the rules of what should not be done while observing the Public Auditors and Accountants Act. It states in the Code that members are required to uphold the Institute's Charter and comply with the Bye-laws.
Practice Names and Descriptions
Section 3 of the ICSAZ code covers the item of practice names and descriptions and under this section it prevents its members from using names which are misleading and that if a company is to describe itself as "Chartered Secretaries" at least one person named on the letterhead of the company should be a member of the Institute. The IFAC code does have such provisions in its Code dealing with how members should come up with a name for their organisations. IFAC just prescribes that its members are to present themselves as public accountants without going on to elaborate on the naming of the companies they work in.
The Advertisement of Services
The marketing of professional services approach take the same route as far as both IFAC and ICSAZ coded are concerned. There is a similarity in that they both do not prohibit members from engaging in advertising campaigns to solicit for clients provided the marketing efforts are done in a way that is professional and strive to uphold the good name of the profession. For instance Section 1.3 of the Code of Practice on Advertising in the ICSAZ code states that advertisement have to be built on factual material and that it is expected that members will exercise discretion and good taste in the preparation and use of all publicity material.
Although the primary functions of IFAC and ICSAZ are not exactly the same, but given that ultimately both their desire of promoting professionalism and working on repairing the damaged image of the accounting profession, it is by no coincidence that the professional codes of ethics as highlighted above would have many similarities than differences.