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INTEGRITY Straightforward & honest in all pro & business rship Also implies fair dealing & truthfulness PA shall not knowingly be assoc with reports, returns, comms or other inform where PA believes: o Contains a materially false or misleading statement o Contains statements/info furnished recklessly o Omits/obscures info req to be included = misleading When aware, PA shall take steps to be disassoc from that info Not allow bias, conflict of interest or undue influence of others to override pro/business judgments PA may be exposed to situations that may impair objectivity Impracticable to define and prescribe all such situations PA shall not perform a pro service if circum/rship biases or unduly influences his judgment with respect to that service Maintain prof knowledge & skill at the level req to ensure client/employer receives competent pro services based on current dev in practice, legis & techniques Act diligently & in accd with applicable technical & pro standards Pro competence: exercise of sound judgment in applying pro knowledge & skill in performance of service Phases of pro competence: o Attainment o Maintenance: req continuing awareness & understanding of relevant technical, pro & business dev Diligence: resp to act in accd with reqs of an asgmt, carefully, thoroughly & on timely basis Ensure those working under PAs authority in a pro capacity have approp training & supervision Make clients, employers or other users of professional services aware of the limitations inherent in services Respect confid of info acq from pro & business rships rd Not disclose info to 3 parties without proper & specific authority, unless there is a legal/pro right or duty to disclose rd Not use the info for the personal advantage or 3 parties Maintain confidentiality: o In soc enviro alert to possibility of inadvertent disclosure (to close/immediate family member) o Info disclosed by a prospective client o Info within firm/employing org Ensure staff under PAs control & persons from whom advice & assistance is obtained respect PAs duty of confidentiality Continues even after end of rship between PA & client: o When PA acquires new client, entitled to use prior experience but NOT use/disclose confidential info acq/receive as a result of pro/business rship.


Circums where PA req to disclose confid info or such disclosure may be appropriate: o Disclosure permitted by law, auth by client o Disclosure req by law: ! Doc as evidence in legal proceedings ! Disclosure to approp public authority o Pro duty/right to disclose: ! Comply quality review of MIA ! Respond to inquiry/investigation by reg body ! Protect pro interest of PA in legal proceedings ! Comply with tech standards & ethics req Factors to consider whether to disclose confid info: o Whether interests of all parties could be harmed if the client give consent to disclosure of info o Whether all relevant info is known & substantiated; if not, pro judgment is used in determining type of disclosure to make o Type of comm expected & to whom it is addressed o Whether parties receiving comm are approp recipients PROFESIONAL BEHAVIOR Comply with relevant laws & regulations Avoid any action that discredits the profession rd o Actions that a reasonable & informed 3 party would be likely to conclude adversely affects the good reputation of the profession (after weighing all specific facts & circums available to PA at that time) Advertising, Marketing and Promotions PA shall not bring profession into disrepute ensure that advrt, marketing or promo material is: o Pro dignified & in good taste o Carried out in accd with relevant legis where applicable PA shall be honest & truthful shall not make: o Exaggerated claims for services they able to offer, the qualf they possess, or experience they gain o Disparaging ref/unsubst comparisons to work of others



Why use CFA? o Impossible to define every situation that creates threats to compliance with fundm principles & specify appropriate action o Nature of engagements & work assignments may differ: diff threats, diff safeguards STEP 1 STEP 2 Is there a threat to compliance with fundm principles? Is the threat significant (not at acceptable level)? Eval threat when acct know/reasonably expected to know will compromise fundm principles Take qual & quant factors to eval Is there any safeguard can be applied? To eliminate threat/to reduce it to acceptably low level Must exercise pro judgment rd Take into acc whether 3 party will consider the safeguard will reduce/eliminate threat If threat is too significant/no safeguard? Decline/discontinue pro service Resign from client/employing org




THREAT SELF-INTEREST Financial/other interest will inapp influence pro acct judgment/behavior EXAMPLES Member of assurance team: Have direct financial interest (FI) in client MAT Have significant close business rship with client MAT enter into employment nego with client Discovering significant error when eval results of previous pro service performed by firm member Firm: Have undue dependence on total fees from client Concerned about possibility of losing significant client Contingent fee arrangement on assurance engmt with client Member of assurance team: Being/recently been, a director/officer of the client Being/recently been employed by client in position to exert signf influence over subject matter of engmt Firm: Issue assur report on effectiveness of fin systems op after design/implement the systems Prepare ori data used to generate records which subject matter of assur engmt Perform service for assur client that directly affects subject matter info of assurance engmt Firm promoting shares in an audit client Acting as an advocate on behalf of an audit client in litigation or disputes with third parties

Threats: May be created by broad range of rships & circums Could compromise/preceived to compromise compliance with fundm principles A circum/rship may create >1 threat, a threat may compromise >1 fundm principle

CATEGORY FIRM-WIDE EXAMPLES Firms leadership: o Stress importance to comply fundm principles o Expect that members of assur team will act in public interest Policies and procedures: o Implement & monitor quality control of engagements o Need to identify threats to compliance with fundm principles, evaluate significance, apply safeguards to eliminate/reduce threats, when no safeguards terminate/decline engmt o Requiring compliance with fundm principles (documented) o Enable identification of interests/rships between firm or members of engmt teams & clients o Monitor & manage reliance on revenue received from 1 client o Prohibit non-members of engmt team from inapprop influencing engmt outcome o Encourage & empower staff to comm to senior levels within firm any issue relating to compliance with fundm principles that concerns them Use diff partners & engmt teams with separate reporting lines for provision of non-assur services to assur client Designate member of senior mgmt to be responsible for overseeing adequate functioning of firms QC system Advise partners & pro staff of assur clients: indp is req Disciplinary mech to promote compliance with policies Having PA who was: o Not involved with the non-assur service review the non-assur work performed or otherwise advise as necessary o Not a member of assur team review the assur work performed or otherwise advise as necessary. rd Consult indp 3 party e.g. committee of indp directors, a pro reg body or another PA Discuss with those charged with govn of client on: o Ethical issues o Nature of services provided & extent of fees charged Involve another firm to perform/re-perform part of engmt Rotate senior assur team personnel Client req persons other than mgmt to ratify/approve aptmt of a firm to perform engmt Client has competent employees with experience & seniority to make managerial decisions Client implement internal procedures that ensure obj choices in commissioning non-assur engmt Client has corp govn structure: provide approp oversight & comm regarding firms services

SELF-REVIEW Will not approp eval results of previous judgmt made or service performed by firm member, which will be relied when forming judgmt in providing current service

ADVOCACY Will promote clients position: objectivity is compromised FAMILIARITY Due to a long/close relationship with client/employer: too sympathetic to their interests or too accepting of their work

INTIMIDATION Deterred from acting objectively because of actual/perceived pressures: attempts to exercise undue influence over pro acct

Member of engmt team having close/immediate family member who is a o Director/officer of client, or o Employee of client in position to exert signf influence over subject matter of engmt Director/officer of client in position to exert signf influence over subject matter of engmt, recently engmt partner Accept gifts/preferential treatment from client, unless value is trivial/inconsequential Senior personnel have long association with assur client Firm: Threatened with dismissal from a client engagement Threatened with litigation by the client Pressured to " inapprop extent of work performed in order to " fees Threatened: no non-assurance contract given if disagree with clients inapprop actg treatment Pro acct: Pressured to agree with client employees judgment because # expertise on matter in question Informed by firm partner that planned promotion wont occur unless agree with clients inapprop acctg treatment



SITUATION EVALUATE SIGNIFICANCE OF THREAT CLIENT ACCEPTANCE Accepting new client rship Threat to integrity: questionable issues related to client e.g. o Client involve in illegal activities o Dishonesty o Questionable fin rep practices Obtain knowledge & understanding of client, its owners, managers & those responsible for its govn & business activities Secure clients commitment to improve corp govn practices/internal controls Review acceptance decisions periodically for recurring engmt If no safeguard: decline to enter into client rship SAFEGUARDS & OTHER RELEVANT POINTS

ENGAGEMENT ACCEPTANCE To provide only those services that PA in public practice is competent to perform Self-interest threat to pro competence & due care: o Engmt team not possess/acq competencies necessary to properly carry out engmt Acq approp understanding of nature of clients business, complexity of ops, specific req of engmt and purpose, nature and scope of work to be performed Acq knowledge: relevant industries Possess/obtain experience with relevt reg/rep req Assign sufficient staff with the necessary competencies. Use experts where necessary Agree on realistic time frame to perform engmt Comply with QC policies & procedures designed to provide reasonable assur that specific engmt are accepted only when they can be performed competently If to rely on advice/work of expert determine whether reliance is warranted, consider: o Reputation o Expertise o Resources available o Applicable pro & ethical standards

FS audit engmt: cannot accept nomination for engmt without enquiring existing auditor whether there is pro/other reason for proposed change of which he should be aware before deciding whether to accept aptmt o If there are: request existing auditor to provide details necessary to enable him to come to a decision When sending tender (reply to requests to send it) state that contact with existing acct will be req (before accept engmt) so inq may be made as to whether there are pro/other reasons why aptmt should not be accepted Ask existing acct to provide known info on any facts/circums that needs to be aware of before deciding whether to accept engmt Obtain info from other sources If no safeguard: decline engmt Asked to undertake work that is complementary or additional to work of existing accountant Threats to pro competc & due care o Lack of/incomplete info Notify existing acct of proposed work, which would give existing acct opportunity to provide relevant info needed for proper conduct of work

Notes: Whether PA is permitted/required to discuss affairs of a client with a proposed acct depend on: o Nature of the engagement o Whether clients permission to do so has been obtained o Legal/ethical req relating to such comm & disclosure PA need to obtain the clients permission (preferably in writing) to initiate discussion with an existing acct: o Permission refused: decline appointment o Permission obtained: existing acct shall comply with relevant legal & other reg governing such requests. - Where the existing accountant provides information, it shall be provided honestly and unambiguously - If unable to comm with existing acct, proposed acct shall take reasonable steps to obtain rd info about any possible threats by other means e.g. through inquiries of 3 parties or background investigt of senior mgmt/those charged with govn of client

CHANGES IN A PROFESSIONAL APPOINTMENT Asked to replace/consider tendering for engmt currently held by anor PA in public practice Threat to pro competc & due care: o Accepts engmt before knowing all pertinent facts May require direct comm with existing acct to est facts & circums regarding proposed change so can decide whether approp to accept engmt o E.g. reasons for change in aptmt may not fully reflect facts, indicate disagreemt with existing acct that may influence decision to accept

SITUATION Accepting new client/continue rship/specific engmt EVALUATE SIGNIFICANCE OF THREAT Threat to obj: o PA competes directly with client o PA has JV with major competitor of client Threat to obj/confid: o PA performs services for clients whose interests are in conflict or clients are in dispute with each other in relation to matter or transact in question SAFEGUARDS & OTHER RELEVANT POINTS Notify client: firms business interest/activities that may rep a COI & obtain consent to act in such circums Notify all known relevant parties: PA is acting for !2 parties in respect of matter where their resp interests are in conflict & obtain consent to so act Notify client: PA doesnt act exclusively for a client in provision of proposed services (e.g. in particular market sector/specific service) & obtain consent to so act If consent asked is refused: PA shall not continue to act for one/more conflicting engmt If no safeguard: (threat to !1 fundm principles) Resign from one/more conflicting engmt Additional safeguards: Use of separate engmt teams Procedures to prevent access to info e.g. strict physical separation of teams, confid & secure data filing Clear guidelines for members of engmt team on issues of security & confid Use of confid agreemt signed by employees & partners of firm Regular review of app of safeguards by a senior individual not involved with relevant client engmt


SITUATION EVALUATE SIGNIFICANCE OF THREAT FEES Enter into nego regarding pro services Self interest threat to pro competc & due care: o Fee quoted so low that it may be difficult to perform engmt in acc with app tech & pro standards for that price Make client aware of terms of engmt particularly basis on which fees charged & which services covered by quoted fee Make client aware of statutory duties & resp involved in respect of engmt Assign approp time & qualified staff Fees charged for assur engmt should be fair reflection of value of work involved & should take into account: Skill & knowledge required for type of work involved Level of training & experience of persons necessarily engaged on work Time necessarily occupied by each person engaged on work Degree of resp & urgency work needs SAFEGUARDS & OTHER RELEVANT POINTS

CONTINGENT FEES Contingent fees widely used for certain types of non-assur engmt Self-interest threat to obj depends on: o Nature of engmt o Range of possible fee amount o Basis for determining fee o Whether outcome of transact rd reviewed by 3 party Advance written agreemt with client as to basis of remuneration Disclosure to intended users of work performed by PA & basis of remuneration QC policies & procedures. rd Review work by obj 3 party

REFERRAL FEES OR COMMISSIONS SITUATION PA is asked to provide nd 2 opinion on app of accounting, auditing, rep or other standards/principles to specific circums or transact by/on behalf of co/entity that is not existing client EVALUATE SIGNIFICANCE OF THREAT Threat to pro competc & due care: nd o 2 opinion not based on same set of facts that made available to existing acct or based on inadequate evidence o Existc & signf of threat depends on circums of request & other available facts & assumptions relevant to expression of pro judgment SAFEGUARDS & OTHER RELEVANT POINTS Seek client permission to contact existing acct Describing limitations surrounding any opinion in comm with client Provide existing acct copy of opinion Fee received for referring a continuing client to another PA/other expert Receive commission rd from 3 party (e.g. software vendor) in connection with sale of goods/services to client Self-interest threat to obj and pro competc & due care: o To receive such fee/commission o Pay referral fee to obtain client e.g. client continues as a client of anor PA but req specialist services not offered by existing acct Disclose to client any arrangmt to pay referral fee to anor PA for work referred Disclose to client any arrangmt to receive a referral fee for referring client to anor PA Obtain advance agreemt from client for commission arrangmt in connection rd with sale by 3 party of goods or services to the client PA may purchase all/part of anor firm on basis that payments will be made to individuals formerly owning the firm/to their heirs/estates


SITUATION EVALUATE SIGNIFICANCE OF THREAT Self-interest threat to pro behaviour o Services, achievmts/product marketed inconsistent with that principle SAFEGUARDS & OTHER RELEVANT POINTS


SITUATION PA or immediate/close family member, being offered gifts & hospitality from client EVALUATE SIGNIFICANCE OF THREAT Self-interest/fam threat to obj: o If gift accepted Intimid threat to obj: o possibility of such offers being made public SAFEGUARDS & OTHER RELEVANT POINTS If gifts/hospitality are offered that rd reasonable & informed 3 party would consider trivial & inconsequential (after weighing all the specific facts and circumstances) PA may conclude that offer is made in normal course of business without specific intent to influence decision making/obtain info If no safeguard: shall not accept offer

ADVERTISING OR MARKETING SERVICES Solicits new work through advert/other forms of marketing PA shall not bring profession into disrepute when advert/marketing services PA shall be honest & truthful and not: o Make exaggerated claims for services offered, qual possessed, experience gained o Make disparaging ref to unsubstantiated comparisons to work of anor If PA in doubt whether a proposed form of advert/marketing is approp, shall consider guidance from MIA


SITUATION EVALUATE SIGNIFICANCE OF THREAT Self-interest threat to pro behavior/obj: o Hold clients assets SAFEGUARDS & OTHER RELEVANT POINTS Keep assets separately from personal/firm assets Use assets only for intended purpose Ready to account for those assets & any income, dividends/gains generated, to any persons entitled to such acctg at all times Comply with all relevant laws & reg relevant to holding of & acctg for asset Make approp inquiries about source of assets & consider legal & reg obligations

TENDERS Public advert/unsolicited request to make submission or submit tender for pro services Self-interest threat to obj and pro competc & due care: o To receive such fee/commission o Pay referral fee to obtain client e.g. client continues as a client of anor PA but req specialist services not offered by existing acct PA shall not respond to advert to tender for prowork unless PA has established safeguards: o Have sufficiently qual & skilled staff to undertake engmt o Disclosing basis on which fees charged & which services covered by quoted fee o If appointmt may result in replacement of another PA, state in submission/tender that before acceptance, opportunity to contact other PA req so that inquiries may be made as to whether there are proreasons why appointmt should not be accepted & if submission/tender is successful, contact existing acct in acc with applicable provisions in S210

PA assume custody of client monies/other assets (only if permitted by law)

SITUATION Having interests in, or rship with, a client or its directors, officers or employees EVALUATE SIGNIFICANCE OF THREAT Fam threat to obj: o Family/close personal/business rship Existence of threats to obj when providing pro service depend upon particular circums of engmt & nature of work that PA is performing SAFEGUARDS & OTHER RELEVANT POINTS Withdraw from engmt team Supervisory procedures Terminate fin/business rship giving rise to threat Discuss issue with higher levels of mgmt within firm. Discuss issue with those charged with govn of client