ACCA Applied Skills · Audit and Assurance

Professional ethics and ACCA's Code of Ethics and Conduct: formula sheet

Full chapter guide

Key formulas

The five fundamental principles: Integrity + Objectivity + Professional competence and due care + Confidentiality + Professional behaviour; Learn all five by name. Exam answers must name the principle, not just say it is unethical.
Integrity: Integrity = straightforward and honest; Linked to not being associated with false or misleading information.
Objectivity: Objectivity = no bias, conflict of interest or undue influence; Most self-interest, familiarity and intimidation scenarios threaten this.
Professional competence and due care: Competence = knowledge and skill at the required level + diligence + keeping up to date; Includes not accepting work you cannot do properly and using proper supervision.
Confidentiality: No disclosure or personal use of information, except where there is a legal or professional right or duty; Disclosure may be allowed with client consent, or required by law, for example some reporting duties.
Professional behaviour: Professional behaviour = comply with laws and regulations + avoid discrediting the profession; Includes not making exaggerated claims about your services or qualifications.
Conceptual framework process: Identify threats → Evaluate significance → Address (eliminate, safeguard or decline/resign); Use this order in every ethics answer. Do not jump straight to the safeguard.
Five threat categories: Self-interest, Self-review, Advocacy, Familiarity, Intimidation; Learn these as a list of five. In your answer, name the category before explaining the facts.
Acceptable level test: Would a reasonable and informed third party conclude that compliance with the fundamental principles is not compromised?; If yes, the threat is at an acceptable level. If no, safeguards are needed.
Fundamental principles: Integrity, Objectivity, Professional competence and due care, Confidentiality, Professional behaviour; Independence supports objectivity and integrity.
Last resort: If safeguards cannot reduce the threat to an acceptable level, eliminate the circumstance, decline or resign; Always give this conclusion in a Section B constructed response answer when the threat is serious.
Fee dependence guide: Fees from one client ÷ total firm fees × 100, compared with 15% for a PIE (more than 15% for two consecutive years) or with the guide in the question for a non-PIE; For a PIE, the Code's provisions refer to fees above 15% of total fees for two consecutive years: disclose to those charged with governance and apply a pre- or post-issuance review of the second year's engagement. Keep monitoring each further year the fees stay above the level. For non-PIEs the Code gives no fixed percentage. A 10% guide is a study-text convention, so use the figure the question gives.
Contingent fees: Fee depends on outcome of the audit work = not permitted; Prohibited for audit and assurance engagements. For non-assurance services to audit clients, contingent fees are prohibited if the fee is material or depends on a judgement related to a material audit matter. Otherwise, assess the threat and apply safeguards.
Gifts and hospitality: Value trivial and inconsequential → may accept; otherwise decline; Consider value, frequency, intent and whether it is customary. Report to the firm.
Financial interests: Direct or material indirect interest in an audit client → serious self-interest threat → dispose of the interest; If the holder is a member of the audit team, remove that person from the team.
Long association: Same senior personnel for too long → familiarity threat → rotate; For PIEs, key audit partners rotate after a maximum of seven years, with a cooling-off period. If the question gives a different period, use it.
Overdue fees: Large unpaid fees = loan to client; Self-interest threat. Consider whether to issue the report before fees are settled.
Permitted disclosure of confidential information: Client consent OR required by law OR professional right or duty to disclose; Check each route in turn. Disclosure required by law overrides the duty of confidentiality, and consent should ideally be in writing.
Factors before disclosing: Consider: harm to others if not disclosed, whether facts are known and proven, who will receive the information, and legal advice; Use these to justify a disclosure in the public interest. Disclose only what is necessary.
Confidentiality vs privilege: Confidentiality = ethical duty to the client; Privilege = legal right protecting certain lawyer-client communications; Confidentiality does not stop a court or regulator from demanding information.
Conflict of interest response: Identify conflict → disclose to affected parties → apply safeguards → decline or withdraw if unmanageable; Consent of affected clients is usually required to continue.
Money laundering reporting route: Suspicion → report to nominated officer (MLRO) → MLRO decides on external report → no tipping off; Do not investigate yourself or discuss it with the client.
Answer structure for ethics scenarios: Threat → Principle affected → Significance → Safeguard (or decline/withdraw); Use this chain for every issue in the scenario. Each link is a separate mark opportunity.
Five fundamental principles: Integrity, Objectivity, Professional competence and due care, Confidentiality, Professional behaviour; Name the specific principle. Writing 'ethics' or 'independence' alone scores poorly.
Five types of threat: Self-interest, Self-review, Advocacy, Familiarity, Intimidation; Label the threat type using the scenario facts, for example a fee dependency is self-interest.
Scepticism vs judgement: Scepticism = questioning mindset; Judgement = applying knowledge and experience to decide; Do not swap them. Scepticism is about attitude to evidence; judgement is about decisions.

Quick revision

Five fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, professional behaviour.
Five threats: self-interest, self-review, advocacy, familiarity, intimidation.
Framework steps: identify threats, evaluate them, address them with safeguards or decline or withdraw.
If a threat cannot be reduced to an acceptable level, you must not accept or continue the engagement.
Self-review arises when you audit your own work, for example preparing the financial statements you then audit.
Self-interest arises from financial interests, fee dependency or loans from the client.
Familiarity arises from close personal or family ties or from long association with a client.
Contingent fees on an audit create a serious self-interest threat.
Gifts and hospitality are a problem when their value is more than trivial or intended to influence judgement.
Confidentiality can be overridden when disclosure is legally required or permitted, or there is a professional duty to disclose.
On suspected money laundering, report through the proper channel and do not tip off the client.
In written answers, always say what the threat is, why it matters and what action you recommend.

Common mistakes

Treating integrity and objectivity as the same thing. Fix: Integrity is honesty. Objectivity is freedom from bias and influence. Ask whether the issue is lying or being swayed.
Saying confidentiality can never be broken. Fix: State that disclosure is allowed with consent, or where law or professional rules give a right or duty to disclose.
Naming the wrong threat, such as calling a long-serving partner a self-interest threat. Fix: Ask how objectivity is damaged. Closeness over time is familiarity. Fear of losing fees is self-interest.
Writing the threat and the safeguard but never explaining why it is a threat. Fix: Add one sentence of explanation for each threat. Marks are usually given for identification and explanation separately.
Treating the 15% fee figure as a legal ban. Fix: Say it is a trigger for safeguards such as independent review and disclosure, and note the two-year condition.
Allowing a contingent fee on an audit with safeguards. Fix: Contingent fees on audits are prohibited. No safeguard fixes it.
Saying confidentiality is absolute and the auditor can never disclose. Fix: Always list the three routes: consent, legal requirement, professional right or duty.
Treating confidentiality and legal privilege as the same thing. Fix: State that confidentiality is an ethical duty, while privilege is a legal right that does not generally cover auditors' work.
Listing threats without linking them to a principle or safeguard. Fix: Always complete the chain: threat, principle, safeguard, using facts from the scenario.
Giving generic safeguards such as 'follow the Code'. Fix: State a specific action: rotate the senior staff, have an independent partner review, separate teams, or decline the work.

Exam tips

Name the principle every time. Marks are usually awarded for naming it and linking it to the facts.
Do not list all five principles. Pick those that fit the scenario and explain each in one or two sentences.
Always finish with an action: refuse, withdraw, apply safeguards, consult or escalate.
In objective questions, match trigger words to principles before you read the answer options.
For confidentiality, mention consent, legal duty or professional right to disclose, not an absolute ban.
Name the threat category first, then explain it. Markers look for both.
Match each safeguard to the threat. A generic safeguard earns little.
In scenario questions, look for the client's status. Listed or public interest status makes threats more serious.