Advanced Audit and Assurance (International) · Code of Ethics for Professional Accountants

IESBA Code of Ethics: The Five Fundamental Principles for AAA

Updated 11 October 2026 · Fact-checked

The IESBA Code sets five fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. You apply them through the conceptual framework: identify threats, evaluate them, and address them with safeguards or by declining or ending the work. In AAA, name the principle, apply it to the facts, then conclude.

Understand IESBA Code of Ethics: Fundamental Principles

The IESBA Code of Ethics is the international ethics standard for professional accountants. ACCA's own rules are consistent with it. It does not try to list a rule for every situation. It sets out principles and a method for applying them.

The five fundamental principles are:

Integrity: be straightforward and honest in all professional and business relationships. Do not be associated with information you believe is materially false or misleading, or that omits or obscures information in a misleading way.
Objectivity: do not let bias, conflict of interest or the undue influence of others override your professional or business judgement.
Professional competence and due care: keep your knowledge and skills at the level needed to give competent service, and act diligently and in line with applicable technical and professional standards.
Confidentiality: respect the confidentiality of information acquired through professional and business relationships. Do not disclose it without proper and specific authority, unless there is a legal or professional right or duty to disclose. Do not use it for personal advantage or the advantage of third parties.
Professional behaviour: comply with relevant laws and regulations and avoid conduct that you know, or should know, might discredit the profession.

The Code takes a principles-based approach, not a purely rules-based one. A rules-based approach gives clear, checkable lines but invites loophole hunting and cannot cover every new situation. A principles-based approach adapts to new facts and asks you to use judgement, but it is less certain and needs a disciplined method. The Code adds specific requirements where needed, such as independence provisions for audit and review clients.

The method is the conceptual framework. You identify threats to compliance with the fundamental principles. You evaluate whether they are at an acceptable level, meaning a reasonable and informed third party would likely conclude that compliance is not compromised. If not, you address them by eliminating the circumstances, applying safeguards, or declining or ending the engagement. The categories of threat are self-interest, self-review, advocacy, familiarity and intimidation. You also stay alert to whether you have been given enough information to judge, which is why the framework asks for ongoing review.

Key rules to remember

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.

How to solve IESBA Code of Ethics: Fundamental Principles questions

Use this method for any ethics requirement, whether it asks you to discuss, advise or recommend.

1Read the requirement and the scenario. Note who you are (auditor, partner, manager) and who the other parties are.
2List the facts that could affect ethical behaviour, such as fees, relationships, pressure, confidential information or skills gaps.
3For each fact, name the fundamental principle at risk and the type of threat.
4Explain why it is a threat in this scenario. Use the facts and numbers given, not a generic definition.
5Evaluate significance: is it at an acceptable level, or does it need action?
6Recommend specific actions: safeguards, escalation to those charged with governance or the firm's ethics partner, or declining or withdrawing. Make each action fit the threat.
7Conclude clearly with a decision and next step, such as whether to accept, continue or disclose.
8Add professional skills: show scepticism, commercial awareness and a clear, concise tone.

Quickest way: Principle, threat, action

When to use it: Use this when time is short, for example on a 5 to 10 mark ethics part of Section A or a Section B question.

Scan the scenario and underline each ethical fact.
Write one line per fact: principle at risk, threat type, why.
Beside each line, write one practical action.
Finish with a one-sentence conclusion.
Check that every mark-worthy fact has been covered and that you have not added unrelated points.

Common mistakes in IESBA Code of Ethics: Fundamental Principles

Listing the five principles with textbook definitions and no application.
Recall feels safe, and students run out of time to analyse.
Fix: Spend your words on the scenario. One short definition at most, then link to the facts.
Confusing objectivity with integrity.
Both sound like fairness and honesty.
Fix: Integrity is honesty and straightforwardness. Objectivity is freedom from bias, conflict or undue influence.
Saying confidentiality means information can never be disclosed.
The word suggests an absolute duty.
Fix: State the duty and its exceptions: disclosure with proper authority, or where there is a legal or professional right or duty to disclose.
Calling the Code rules-based, or saying a principles-based approach means no firm requirements.
Students mix up the Code with detailed local regulations.
Fix: Say the Code is principles-based, with specific requirements and a framework, so you must use judgement but within clear limits.
Jumping to withdrawal or reporting without evaluating the threat.
Students want to show decisiveness.
Fix: Show the steps: identify, evaluate, then address. Withdraw only where threats cannot be reduced to an acceptable level.
Offering safeguards that do not match the threat.
Students recite a stock list of safeguards.
Fix: Tailor each safeguard. A self-review threat needs a different team or review, not just a note to file.

Worked examples

Example 1

Your audit firm has audited Zenith Ltd for six years. The finance director, a close friend of the audit engagement partner, has asked the partner to accept a favourable view on a disputed provision to protect a bonus target. The partner is inclined to agree. Identify the fundamental principles at risk and the threats, and recommend actions. (8 marks)

Show the solution

Facts: a close friendship and a request to accept a favourable view on a disputed provision, linked to a bonus target.
Objectivity is at risk. The friendship creates a familiarity threat, and the request creates an intimidation or undue-influence threat. The bonus link shows the client has a personal interest in the outcome.
Integrity is at risk. Accepting a view the partner doubts, to be agreeable, would mean being associated with potentially misleading financial information.
Professional behaviour is at risk if the audit work does not meet standards.
Evaluation: the threats are significant. The matter affects the audit opinion, and the partner's inclination to agree shows the threat is already affecting judgement.
Actions: remove the partner from the judgement on this provision and have another senior partner or the engagement quality reviewer assess it. Document the audit evidence for the provision and the rationale. Communicate the matter to those charged with governance if management persists. If the partner's objectivity cannot be restored, replace the partner on the engagement and consult the firm's ethics partner.
Conclusion: the provision must be judged on evidence only. The friendship must not influence the opinion.

Answer: Objectivity and integrity are at risk, with familiarity and intimidation threats. The threats are significant. The firm should take the judgement away from the partner, have it independently reviewed, document the evidence, escalate to those charged with governance if needed, and replace the partner if objectivity cannot be assured.

Example 2

Explain the difference between a rules-based and a principles-based approach to ethics, and say which the IESBA Code adopts and why that helps auditors. (6 marks)

Show the solution

Define rules-based: detailed requirements that state what is allowed or banned in specific situations.
Advantage: clarity and easy enforcement. Disadvantage: loopholes, form over substance, and gaps when new situations arise.
Define principles-based: broad fundamental principles applied with judgement to the facts.
Advantage: adapts to new circumstances and focuses on substance. Disadvantage: less certainty, more judgement and possible inconsistency.
The IESBA Code is principles-based. It sets five fundamental principles and a conceptual framework to identify, evaluate and address threats. It also includes specific requirements where needed, such as independence provisions.
Why it helps: auditors face varied clients and situations, so a framework for thinking is more useful than a closed list. The test of a reasonable and informed third party keeps judgement objective and consistent.

Answer: A rules-based approach gives clear lines but invites loopholes and cannot cover every case. A principles-based approach adapts to circumstances but needs judgement. The IESBA Code is principles-based, supported by a conceptual framework and some specific requirements, so auditors can respond to new situations while keeping public confidence.

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.

Practice questions from Code of Ethics for Professional Accountants

IESBA Code of Ethics: Fundamental Principles in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

IESBA Code of Ethics: Fundamental Principles: frequently asked questions

What are the five fundamental principles in the IESBA Code?

They are integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. Every accountant must comply with all five. You apply them using the conceptual framework.

What is the conceptual framework in the IESBA Code?

It is the method for applying the principles. You identify threats, evaluate whether they are at an acceptable level, and address them by eliminating them, applying safeguards, or declining or ending the engagement. You also keep the position under review.

Is the IESBA Code rules-based or principles-based?

It is principles-based. It gives fundamental principles and a framework that call for judgement. It also contains specific requirements in areas such as independence, so it is not a pure principles-only code.

Can an auditor ever disclose confidential client information?

Yes, but only in limited circumstances. Examples are where the client has given proper authority, or where there is a legal or professional right or duty to disclose. Outside those cases, the duty of confidentiality applies.