A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. A professional accountant’s responsibility is not solely to satisfy the needs of an individual client or employing organisation. In recognition of this fact, the International Ethics Standards Board for Accountants (IESBA) has issued a Code of Ethics for Professional Accountants (‘The Code’). The code is publicly accessible on the IFAC website. The IESBA is one of the standard setting boards of the International Federation of Accountants (IFAC). The Code:
Candidates who are sitting the DipIFR examination are expected to have a general appreciation of the contents of the code together with a specific knowledge of section 100, sections 110-115, and section 120. This knowledge and understanding will be tested in question 2 of the DipIFR examination from December 2021.
In question 2, candidates would be faced with a scenario where they are required to identify and explain the financial reporting treatment of a series of issues. Embedded within the scenario would be a situation where one or more of the fundamental ethical principles were in danger of being breached. In addition to addressing the underlying financial reporting issues presented in the question, candidates would also be asked to identify the fundamental ethical principles that could potentially be breached in the question scenario. Candidates could also be asked to suggest appropriate actions that could be taken in order to address the relevant ethical threats. With effect from the December 2021 examination sitting, question 2 of the DipIFR paper will always include an ‘ethical component’ with a maximum mark allocation of five marks.
The five fundamental principles are:
The circumstances in which professional accountants operate might create threats to compliance with the fundamental principles. The Code identifies these threats and contains guidance on addressing them. The identified threats are:
When a threat to compliance is identified, the accountant should assess the significance of the threat. In particular the accountant should consider whether or not the level of the threat is acceptable. A threat would be acceptable if there was no significant risk that one or more of the fundamental ethical principles could be breached. If the level of threat were assessed as not acceptable the accountant could take one or more of the following actions:
A practical example
A trainee accountant [X] is responsible for preparing the first draft of the financial statements of the company she works for. She has received the following E mail from the finance director:
‘It’s very important that the upcoming set of financial results shows a favourable financial performance and position. If the results are good then potentially there are big bonuses available for all staff, including you! I know that many of the numbers in financial reports are based on estimates. When you are preparing the financial statements I want you to choose estimates that will produce the maximum acceptable reported profit. I hope you will comply with my request. I will be carrying out your annual staff appraisal shortly and this will certainly be a factor in the grading I give you’.
X is concerned about this request and has approached a friend, Z, who is also a trainee accountant, for advice. Z works for another company.
The examination requirement accompanying a scenario like this might be to identify the ethical issues/threats that X might face in this situation. These would include threats to the fundamental principles of:
With effect from December 2021, ethical issues will always be examined in DipIFR. Candidates should ensure that they are familiar with the relevant paragraphs from The Code and are able to apply them in practical situations. However not every examination scenario will require identification of all five fundamental principles, or all of the above threats and candidates must tailor their answer accordingly to only include those that are relevant to ensure credit is given.
Written by a member of the DipIFR examining team