What is not a safeguard created by the profession legislation or regulation?

The state of mind that permits the expression of a conclusion without being affected by influences that compromise professional judgement, thereby allowing an individual to act with integrity and exercise objectivity and professional scepticism, is called:

Accountants and businesses can use a number of measures to address threats, including applying safeguards. Essentially, safeguards are measures that can be put in place to counter the threats, assuming the accountant considers that the threats will not compromise the member’s adherence to any of the five principles. As stipulated in APES 100.2c ‘Safeguards are necessary when the Member determines that the threats are not at a level at which a reasonable and informed third party would be likely to conclude, weighing all the specific facts and circumstances available to the Member at that time, that compliance with the fundamental principles is not compromised.’ 

Safeguards fall into two broad categories:

(a) safeguards created by the profession, legislation or regulation (as per APES 100.14). These include, but not limited to:

1. Educational, training and experience requirements, whereby accountants undertake training in university, then professionally through a professional accounting body, and concurrently work in an accounting capacity while doing so. This exposes and educate accountants on the acceptable norms that relate to their role.
2. Continuing professional development (CPD) requirements, refers to the ongoing annual training that accountants must undertake in order to maintain their professional certification as a CA, CPA, etc. These requirements, and to the extent that the accountants does keep up with their CPD hours, remind them and make them aware of what is acceptable ethical conduct and keep them informed of relevant standards (both technical and ethical) that apply to their role.
3. Corporate governance regulations identify norms surrounding the proper management and direction with which senior officers are expected to discharge their duties when managing organisations. This safeguard implicitly controls or constrains the behaviour of accountants, in senior management roles, that perform a governance role in their business.
4. Professional standards, professional or regulatory monitoring and disciplinary procedures act as deterrents to accountants, minimising any unethical conduct that might take place.
5. An external review by a legally empowered third party who independently judges the actions of an accountant or firm, making a determination on the accountant’s ethical conduct and behaviour.

(b) safeguards in a work environment including internal systems, practices, perspectives or structures within organisations that reduce the likelihood of threats (independent of external regulations, adapted from APES 300.14). These include, but not limited to:

1. Organisation’s own monitoring/oversight systems – as you would have learnt in AAA, businesses create their own internal controls and monitoring systems which may reduce or eliminate unethical behaviours by employees
2. Organisational ethics and conduct programs – these programs makes employees aware and is a barrier to act in an unethical manner.
3. Recruitment procedures that sources for high calibre competent staff.  In general, recruiting high quality and recommended (known to not breach ethics in order to achieve objectives) staff aligns strongly to ethical conduct
4. Strong internal controls (e.g. segregation of duties) that ensure that employees behave in alignment to the business objectives and goals.
5. Appropriate disciplinary processes that employees are aware of so that they know the consequences of not acting ethically and thus in line with business’ expectations.
6. Leadership – When leaders set a good example and conduct themselves ethically, junior staff will follow. Also leadership must signal that unethical conduct will not be tolerated and is seen as undesirable with stringent consequences.
7. Monitor the quality of employee performance – it is very important for businesses to not only observe employee performance, but how it was attained. Were (unethical) compromises made to achieve targets? Were any individuals or stakeholders impacted by the action of the employee’s performance?
8. Timely communication of an organisation‘s policies and procedures, and training on these policies and procedures. This will enable employees to be aware that unethical conduct is not tolerated or accepted by the business.
9. Senior management open to hearing ethical grievances (whistleblowing, etc.) and that such reporting would not penalise the employee who reports the unethical conduct.
10. Consultation with another accountant member who is able to act as an objective third party (not directly involved and affected by the unethical behaviour) so as to obtain another viewpoint on the possible unethical conduct.

Ethical thinking/conceptual framework

The APESB has developed a conceptual framework to help members resolve accounting ethcial problems. APES100.5 provides a conceptual framework that requires a member to identify, evaluate and address threats to compliance with the fundamental principles, rather than merely comply with a set of specific rules which may be arbitrary. When initiating either a formal or informal conflict resolution process, a Member should consider the following, either individually or together with others, as part of the resolution process:

1. Relevant facts – what do we know of the matters concerning the problem at hand? In other words, the factual content and (un) ethical conduct of the events that happened
2. Ethical issues involved –ethical matters that relate to the relevant facts of the issue at hand.
3. Fundamental principles related to matter in question, including the identification of threats to those principles – the five principles and threats are assessed against the matter investigated.
4. Established internal procedures which might represent safeguards against the identified threats – what went wrong in the case concerned, and how might we mitigate the likelihood of its re-occurring? With this step, the internal procedures established will improve controls within the business.
5. Alternative courses of action – can we change how we do things so this problem is avoided, whoever is the accountant in the future? This final step relates to other actions that can be put in place to prevent such an occurrence from happening in the future.

When applying the conceptual framework (applicable from 31st December 2021), the Member shall:

(a) Have an inquiring mind when identifying, evaluating and addressing threats to the fundamental principles. This represents the need to consider the source, relevance and sufficiency of information obtained taking into account the nature, scope and outputs of the professional activity being undertaken and being open and alert to a need for further investigation or other action.

(b) Exercise professional judgement, which involves the application of relevant training, professional knowledge, skill and experience commensurate with the facts and circumstances, taking into account the nature and scope of the particular professional activities, and the interests and relationships involved.; and

(c) Use the reasonable and informed third party test which is a consideration by the member about whether the same conclusions would likely be reached by another party. Such consideration is made from the perspective of a reasonable and informed third party, who weighs all the relevant facts and circumstances that the member knows, or could reasonably be expected to know, at the time the conclusions are made. The reasonable and informed third party does not need to be a member, but would possess the relevant knowledge and experience to understand and evaluate the appropriateness of the member’s conclusions in an impartial manner.

Overall the conceptual framework to ethical conflict resolution seeks to identify the problem and provide solutions to enable a business to meet their responsibility to act in the public interest. This framework is very important in businesses, as it provides the basis from which entities may seek to prevent, manage or rectify an ethical conflict.

Which of the following is an example of a safeguard created by the professional legislation or regulation?

What are the threats and safeguard measures in professional ethics?

What are the 5 basic principles in professional ethics?

What are safeguards in ethics?