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ACCA Strategic Professional · Strategic Business Leader · Professionalism, ethical codes and the public interest

A regulator criticises the accounting profession because members follow detailed rules to the letter yet still produce reports that mislead users. The profession responds that its ethical code uses a principles-based approach. What is the main implication of this approach for an accountant facing a situation the code does not specifically cover?

Under a principles-based approach the accountant applies the fundamental ethical principles to uncovered situations and tests the decision against what a reasonable and informed third party would conclude about the public interest. Silence in the code does not permit an action, which is the loophole risk of rules-based systems.

  1. AThe accountant may do anything not expressly prohibited
  2. BThe accountant must apply the fundamental principles and judge whether a reasonable and informed third party would see the action as consistent with the public interestCorrect
  3. CThe accountant must refuse all work in unfamiliar areas
  4. DThe accountant should follow the employer's own policy, which replaces the code

Explanation

A principles-based code requires the accountant to apply fundamental principles such as integrity, objectivity and professional behaviour to new situations, using judgement and a reasonable and informed third-party test. This avoids the loophole behaviour a purely rules-based approach invites. Option A describes the very rules-based loophole mentality the approach is meant to prevent.

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