Revised IFA Code of Ethics for 2020
The new IFA Code of Ethics will be eﬀective from 1 March 2020. It incorporates all the developments in ethics and independence from the International Ethics Standards Board for Accountants’ (IESBA) Code of Ethics (part of IFAC).
The code has been revamped to make it easier to navigate and understand. It includes a ‘guide to the code’ to explain how it’s structured and how it should be used. The language in the code is clariﬁed, distinguishing between ‘must, may and might’, including application material to aid understanding of the code. The content has been re-ordered and re-numbered and complex sentences have been simpliﬁed.
Same ethical principles
The fundamental principles – integrity, objectivity, professional competence, due care, conﬁdentiality and professional behaviour – continue to establish the standards of behaviour expected of IFA members.
These fundamental principles, as well as the categories of threats to them (self-review, self-interest, advocacy, familiarity and intimidation threats, and the conceptual framework) are unchanged.
All IFA members are required to identify, evaluate and address threats to compliance with the fundamental principles, and where applicable, independence. However, there have been some enhancements in the conceptual framework.
Enhanced conceptual framework
The framework clariﬁes that:
- Threats are addressed either by eliminating the circumstances creating the threats; applying safeguards where they are available or capable of reducing the identiﬁed threats to an acceptable level; or by declining or ending the speciﬁc professional activity or service.
- Members should take note of the new requirement for members to ‘stand back’ and think about whether the overall conclusion made or actions they have taken are appropriate to resolve the issue.
- Safeguards are ‘actions, either individually or in combination, that a member takes that eﬀectively reduce threats to compliance with the fundamental principles to an acceptable level’.
- There is a distinction between safeguards and ‘conditions, policies and procedures’. Conditions, policies and procedures that are established by profession, legislation, regulation, the ﬁrm, or the employing organisation to enhance members acting ethically are not safeguards as they are not speciﬁcally designed to deal with a particular threat.
- Compliance with the fundamental principles supports the exercise of professional scepticism.
- Members must remain alert for new information, or changes to facts and circumstances in applying the conceptual framework and evaluate any impact of these changes on threats. Members are required to exercise professional judgement and use the concept of the ‘reasonable and informed third-party (RITP) test’ when identifying, evaluating and addressing threats to the fundamental principles. The RITP test involves weighing all the relevant facts and circumstances that a member knows, or could reasonably be expected to know, at the time that the conclusions are made.
Other key changes
Clariﬁcation of the applicability of part 2 and part 3 of the code
There is clariﬁcation of how the provisions of the part two (members in business) and part three (members in public practice) work together. There are new requirements that the guidance in part two of the code may apply to members in practice when they perform professional services for a ﬁrm and the relationship between the ﬁrm and the member in practice is similar to a contractor, employee or owners of the ﬁrm.
Changes to independence requirements for audit and assurance engagements
The changes have little impact on IFA members as they relate principally to audit work. However, some changes do aﬀect assurance engagements. In particular, the explicit requirement to consider whether the engagement needs to be terminated.
Additional guidance and clariﬁcation is now provided relating to: management responsibilities, including demarcation of ‘administrative services’; and ‘routine and mechanical’, in the context of the provision of accounting services to entities to which audit and assurance services are also supplied.
Inducements (e.g. gifts and hospitality)
There is clariﬁcation on the meaning of inducements, introduction of a framework for deciding what is acceptable inducements and guidance on behaviour in situations involving inducements for members in practice and in business. There is a new intent test that prohibits oﬀering or accepting inducements where there is actual or perceived intent to improperly inﬂuence the behaviour of the recipient or another individual.
Pressure to breach the fundamental principles
There is a new explicit requirement which requires members not to allow pressure to result in breach of the fundamental principles. This includes not pressuring others to breach the fundamental principles.
Preparing and presenting information
There is additional guidance on exercising discretion when preparing or presenting information with an intent to mislead or inappropriately inﬂuence contractual or regulatory outcomes, including how members may consider disassociating themselves from misleading information.
The changes in the code are the result of a long period of stakeholder engagement by IESBA and are aimed at improving the understanding of the requirements by making them easier to use, navigate and enforce.
Further information is available at ifa.org.uk/about-us/acting-in-the-publicinterest/memberregulations
Anne Davis is director of professional standards at the IFA