Code of Ethics for Professional Accountants: formula sheet

Key formulas

The five fundamental principles

Integrity, Objectivity, Professional competence and due care, Confidentiality, Professional behaviour

Memory aid: I-O-P-C-P. Name the exact principle at risk in every answer.

Conceptual framework steps

Identify threats → Evaluate them → Address them (eliminate, safeguard, or decline/end the work)

Evaluate against the test of a reasonable and informed third party.

Categories of threat

Self-interest, Self-review, Advocacy, Familiarity, Intimidation

Label each threat in the scenario with one of these five.

Approach of the Code

Principles-based, with specific requirements where needed

Do not describe the Code as purely rules-based.

Five categories of threat

Self-interest, self-review, advocacy, familiarity, intimidation

Name the category exactly and link it to a fact in the scenario.

Conceptual Framework approach

Identify threats → Evaluate them → Address them

Evaluation asks if the threat is at an acceptable level, using the reasonable and informed third party test.

Ways to address a threat

Eliminate the circumstances, or apply safeguards, or decline or end the engagement

If no safeguard can reduce the threat to an acceptable level, you must decline or end the engagement or relationship.

Reasonable and informed third party test

Would a reasonable and informed third party likely conclude that compliance with the fundamental principles is not compromised?

This is an objective test, not your own opinion.

Fundamental principles

Integrity, objectivity, professional competence and due care, confidentiality, professional behaviour

Say which principle is put at risk by each threat.

Fundamental principles

Integrity | Objectivity | Professional competence and due care | Confidentiality | Professional behaviour

Name the principle under threat in every answer. Confidentiality and objectivity are most relevant here.

Permitted or required disclosure of confidential information

Client consent (with third-party interests considered) | Required by law | Professional right or duty where law does not prohibit

Say which category applies. If disclosure is optional, explain the judgement factors and recommend legal advice.

Managing a conflict of interest

Identify → Evaluate → Address (safeguards, disclosure, consent) → Decline or withdraw if unmanageable

Disclosure and consent do not remove the need for separate teams or barriers where confidential information is at risk.

Client acceptance factors

Integrity of client | Competence, capacity and resources | Independence and ethical compliance | Conflicts | Risk and fee considerations

Link each factor to a threat. Continuance uses the same factors.

Communication with the existing auditor

Obtain client permission → Ask about professional reasons for not accepting → Assess the response

If the client refuses permission, consider whether to accept at all.

NOCLAR response sequence

Understand → Discuss with management/TCWG → Assess response → Consider further action → Document

Use this order as the skeleton for any NOCLAR requirement.

Further action options

Disclose to an appropriate authority | Inform group/component auditor | Withdraw from engagement | Seek legal advice

Which option fits depends on the seriousness of the matter, the response of management and local law.

Reporting chain for money laundering

Staff member → MLRO (nominated officer) → national authority

Staff report internally. The MLRO decides on the external report. The exact title and body depend on the jurisdiction.

Tipping off rule

Do not alert the suspect that a report has been or may be made

Applies to the fact of the report and to an investigation. Avoid inconsistent communication with the client.

Disclosure test for confidentiality

Legal requirement, or legal permission, or public interest consideration under the Code

Always check local law first. Consider legal advice before disclosing.

Five fundamental principles

Integrity, Objectivity, Professional competence and due care, Confidentiality, Professional behaviour

Name the principle at risk in every answer, not just 'ethics'.

Categories of threat

Self-interest, Self-review, Advocacy, Familiarity, Intimidation

Label each threat in the scenario. Pressure is usually intimidation, gifts are usually self-interest or familiarity.

Ways to address a threat

Eliminate the circumstances, apply safeguards, or decline/end the specific professional activity or engagement

Use this order of thinking. Safeguards must reduce the threat to an acceptable level.

Acceptable level test

Would a reasonable and informed third party, weighing all the specific facts and circumstances available to the professional accountant at that time, conclude that compliance with the principles is not compromised?

Use this wording when judging whether a threat is acceptable.

Conflict resolution steps

Facts → Principles and threats → Relevant parties and policies → Alternatives → Consult → Decide and act → Document

If unresolved, consider seeking legal advice and, as a last step, withdrawing.

Quick revision

• The five fundamental principles are integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.
• The conceptual framework requires you to identify, evaluate and address threats. To judge whether a threat is at an acceptable level, use the 'reasonable and informed third party' test. You must also stay alert to changes in facts and circumstances and reassess if they change.
• Threat categories are self-interest, self-review, advocacy, familiarity and intimidation.
• If a threat cannot be reduced to an acceptable level, decline or withdraw from the engagement, or end the relationship.
• Safeguards must fit the facts. A generic list without application earns few marks.
• The Code prohibits assuming management responsibilities for any audit client. For public interest entity audit clients, it also prohibits non-assurance services that create a self-review threat. For other audit clients, evaluate the threat and apply safeguards, or decline the service where safeguards are not available.
• Fee dependency, gifts, hospitality, long association and family or personal relationships are standard independence issues.
• Before accepting a client, consider integrity, competence, resources, conflicts and independence.
• Confidentiality is not absolute. Disclosure may be required by law, permitted in the public interest or to protect professional interests, or made with client consent.
• With NOCLAR, consider the matter, seek to understand it, raise it with management and those charged with governance, and decide whether further action or disclosure is needed. The Code does not itself require disclosure. Disclosure is required when law requires it, and may be made where law permits and it is appropriate in the public interest. Take account of confidentiality duties and get legal advice where the position is unclear.
• Money laundering reporting and tipping-off duties come from local law, not the IESBA Code. Where they apply, you usually report to the relevant authority and avoid tipping off the client.
• Always end an ethics answer with a clear recommendation and its reason.

Common mistakes

• Listing the five principles with textbook definitions and no application. Fix: Spend your words on the scenario. One short definition at most, then link to the facts.
• Confusing objectivity with integrity. Fix: Integrity is honesty and straightforwardness. Objectivity is freedom from bias, conflict or undue influence.
• Listing the five threats with definitions but not applying them to the scenario. Fix: Quote the scenario fact first, then name the threat. Marks are for application.
• Naming the wrong threat, such as calling a long audit tenure self-interest. Fix: Match the cause to the label. Long association is familiarity. Reviewing your own work is self-review. Pressure from a client is intimidation.
• Saying confidentiality can never be breached. Fix: State the three categories of permitted or required disclosure and apply the one that fits the facts.
• Saying the auditor must always disclose when the law allows it. Fix: Separate required from permitted disclosure. For permitted cases, discuss judgement factors and recommend legal advice.
• Telling the client that a suspicion report has been made to the MLRO or authority. Fix: State clearly that tipping off is prohibited. Advise the team to take guidance from the MLRO before any discussion with the client.
• Saying confidentiality always stops the auditor from disclosing. Fix: Explain that confidentiality has exceptions: legal requirement, legal permission and, under the Code, disclosure of NOCLAR to an appropriate authority. Check local law.
• Listing the five principles without applying them to the facts. Fix: Name only the relevant principle and tie it to a specific fact in the scenario.
• Saying the auditor must resign immediately. Fix: Show the steps first: assess, apply safeguards, consult and escalate. Withdraw only if the threat cannot be reduced to an acceptable level.

Exam tips

• Name the exact principle for each issue. Marks are usually awarded for the right principle and the right threat label.
• Quote facts and figures from the scenario. Generic answers score poorly.
• Use the structure principle, threat, evaluation, action, and keep each point to a few lines.
• Always give a conclusion or recommendation. Many answers stop at analysis.
• Use professional skills marks by being sceptical of management's explanations and by writing a clear, concise answer for the reader named in the requirement.
• Always tie the threat to a fact in the scenario. A bare list of threat names earns little.
• Use the exact category labels from the Code. Examiners look for them.
• Give a specific safeguard for each threat and say who applies it, such as the engagement partner or the ethics partner.