Section 300 Introduction

300.1

This part of the code illustrates how the conceptual framework contained in Part A is to be applied by professional accountants in public practice. The examples in the following sections are not intended to be, nor should they be interpreted as, an exhaustive list of all circumstances experienced by a professional accountant in public practice that may create threats to compliance with the principles. Consequently, it is not sufficient for a professional accountant in public practice merely to comply with the examples presented; rather, the framework should be applied to the particular circumstances faced.

300.2

A professional accountant in public practice should not engage in any business, occupation or activity that impairs or might impair integrity, objectivity or the good reputation of the profession and as a result would be incompatible with the rendering of professional services.

Threats and safeguards

300.3

Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances. Many threats fall into the following categories:

(a) self-interest

(b) self-review

(d) familiarity

(e) intimidation.

These threats are discussed more fully in Part A of this code.

The nature and significance of the threats may differ depending on whether they arise in relation to the provision of services to a financial statement audit client*, a non-financial statement audit assurance client* or a non-assurance client.

300.4

Examples of circumstances that may create self-interest threats for a professional accountant in public practice include, but are not limited to:

a financial interest* in a client or jointly holding a financial interest with a client
undue dependence on total fees from a client
having a close business relationship with a client
concern about the possibility of losing a client
potential employment with a client
contingent fees* relating to an assurance engagement*
a loan to or from an assurance client or any of its directors or officers.

300.5

Examples of circumstances that may create self-review threats include, but are not limited to:

the discovery of a significant error during a re-evaluation of the work of the professional accountant in public practice
reporting on the operation of financial systems after being involved in their design or implementation
having prepared the original data used to generate records that are the subject matter of the engagement
a member of the assurance team* being, or having recently been, a director or officer* of that client
a member of the assurance team being, or having recently been, employed by the client in a position to exert direct and significant influence over the subject matter of the engagement
performing a service for a client that directly affects the subject matter of the assurance engagement.

300.6

Examples of circumstances that may create advocacy threats include, but are not limited to:

promoting shares in a listed entity* when that entity is a financial statement audit client
acting as an advocate on behalf of an assurance client in litigation or disputes with third parties.

300.7

Examples of circumstances that may create familiarity threats include, but are not limited to:

a member of the engagement team having a close or immediate family relationship with a director or officer of the client
a member of the engagement team having a close or immediate family relationship with an employee of the client who is in a position to exert direct and significant influence over the subject matter of the engagement
a former partner of the firm being a director or officer of the client or an employee in a position to exert direct and significant influence over the subject matter of the engagement
accepting gifts or preferential treatment from a client, unless the value is clearly insignificant
long association of a senior member of the personnel of the assurance team with the assurance client.

300.8

Examples of circumstances that may create intimidation threats include, but are not limited to:

being threatened with dismissal or replacement in relation to a client engagement
being threatened with litigation
being pressured to reduce inappropriately the extent of work performed in order to reduce fees.

300.9

A professional accountant in public practice may also find that specific circumstances give rise to unique threats to compliance with one or more of the fundamental principles. Such unique threats obviously cannot be categorised. In either professional or business relationships, a professional accountant in public practice should always be on the alert for such circumstances and threats.

300.10

Safeguards that may eliminate or reduce threats to an acceptable level fall into two broad categories:

(a) safeguards created by the profession, legislation or regulation

(b) safeguards in the work environment.

Examples of safeguards created by the profession, legislation or regulation are described in paragraph 100.12 of Part A of this code.

300.11

In the work environment, the relevant safeguards will vary depending on the circumstances. Work environment safeguards comprise firm-wide safeguards and engagement specific safeguards. A professional accountant in public practice should exercise judgment to determine how to best deal with an identified threat. In exercising this judgment a professional accountant in public practice should consider what a reasonable and informed third party, having knowledge of all relevant information, including the significance of the threat and the safeguards applied, would reasonably conclude to be acceptable. This consideration will be affected by matters such as the significance of the threat, the nature of the engagement and the structure of the firm.

300.12

Firm-wide safeguards in the work environment may include the following.

Leadership of the firm that stresses the importance of compliance with the fundamental principles.
leadership of the firm that establishes the expectation that members of an assurance team will act in the public interest.
Policies and procedures to implement and monitor quality control of engagements.
Documented policies regarding the identification of threats to compliance with the fundamental principles, the evaluation of the significance of these threats and the identification and the application of safeguards to eliminate or reduce the threats, other than those that are clearly insignificant, to an acceptable level.
For firms that perform assurance engagements, documented independence* policies regarding the identification of threats to independence, the evaluation of the significance of these threats and the evaluation and application of safeguards to eliminate or reduce the threats, other than those that are clearly insignificant, to an acceptable level.
Documented internal policies and procedures requiring compliance with the fundamental principles.
Policies and procedures that will enable the identification of interests or relationships between the firm or members of engagement teams and clients.
Policies and procedures to monitor and, if necessary, manage the reliance on revenue received from a single client.
Using different partners and engagement teams with separate reporting lines for the provision of non-assurance services to an assurance client.
Policies and procedures to prohibit individuals who are not members of an engagement team from inappropriately influencing the outcome of the engagement.
Timely communication of a firm's policies and procedures, including any changes to them, to all partners and professional staff, and appropriate training and education on such policies and procedures.
Designating a member of senior management to be responsible for overseeing the adequate functioning of the firm's quality control system.
Advising partners and professional staff of those assurance clients and related entities from which they must be independent.
A disciplinary mechanism to promote compliance with policies and procedures.
Published policies and procedures to encourage and empower staff to communicate to senior levels within the firm any issue relating to compliance with the fundamental principles that concerns them.

300.13

Engagement-specific safeguards in the work environment may include:

involving an additional professional accountant to review the work done or otherwise advise as necessary
consulting an independent third party, such as a committee of independent directors, a professional regulatory body or another professional accountant
discussing ethical issues with those charged with governance of the client
disclosing to those charged with governance of the client the nature of services provided and extent of fees charged
involving another firm to perform or re-perform part of the engagement
rotating senior assurance team personnel.

300.14

Depending on the nature of the engagement, a professional accountant in public practice may also be able to rely on safeguards that the client has implemented. However, it is not possible to rely solely on such safeguards to reduce threats to an acceptable level.

300.15

Safeguards within the client's systems and procedures may include the following.

A client appoints a firm in public practice to perform an engagement, persons other than management ratify or approve the appointment.
The client has competent employees with experience and seniority to make managerial decisions.
The client has implemented internal procedures that ensure objective choices in commissioning non-assurance engagements.
The client has a corporate governance structure that provides appropriate oversight and communications regarding the firm's services.

*see Definitions

Chartered Institute of Management Accountants