CODE OF PROFESSIONAL CONDUCT AND ETHICS
The Accounting & Corporate Regulatory Authority (ACRA) is Singapore’s corporate regulator as well as the independent regulator for public accountants. It was formed from the merger of the Registry of Companies and Businesses (RCB) and the Public Accountants Board (PAB) on 1st April 2004.
ACRA’s primary role is that of the regulator of businesses and public accountants. Its secondary role is that of a facilitator of businesses.
ACRA plays an important role in facilitating the doing of business in Singapore but our main role remains that of a regulator. In line with the need to create a responsive and trusted regulatory environment, ACRA seeks to facilitate a pro-enterprise environment. ACRA is committed to continually reviewing the legislation and reducing the regulatory burden to be in tune with business needs and international developments and to help promote entrepreneurship and enterprise. To this end, ACRA sees confidence in corporate reporting and governance as vital to the healthy functioning of businesses and the market, and making a significant contribution to the overall economy and Singapore’s competitiveness in international markets.
One Introduction 1
Two Outline of the Proposed Code 5
Three Summary of Key Changes, and Consultation
Four Summary of Questions 56
ONE - INtroduction
1.1 Having a code of professional conduct and ethics is a foundation of public confidence in public accountants. It assures the public that public accountants will undertake their work with integrity, objectivity, competence and due care, and ensure confidentiality and proper professional behaviour. A code of professional conduct and ethics also helps public accountants to manage client relationships in keeping with their duty to serve the public interest. In this respect, the requirement for public accountants to be independent from their assurance clients is a cornerstone of such a code.
1.2 The current Code of Professional Conduct and Ethics (the current ACRA Code), contained in the Fourth Schedule of the Accountants (Public Accountants) Rules 2004 (the Rules), was prescribed in October 2002 by the Public Accountants Board (one of the predecessors of ACRA). It was partly based on an early version of a code issued by the International Federation of Accountants (IFAC). While the current ACRA Code is still relevant, it needs to be updated so that it remains in line with international developments and developments in the profession in Singapore.
1.3 In 2006, the Public Accountants Oversight Committee (PAOC) established the Ethics Sub-Committee (the Committee) and tasked it with reviewing the current ACRA Code to ensure that it remains relevant in promoting the standards of the profession of public accountancy in Singapore.
1.4 The Committee intends to recommend the adoption of a code based on the latest IFAC Code of Ethics for Professional Accountants (the IFAC Code) to replace the current ACRA Code. The Committee has reviewed the IFAC Code against the current ACRA Code, and has drafted a proposed Code of Professional Conduct and Ethics for Public Accountants (the proposed Code), which it is now issuing for comments.
1.5 The proposed Code re-affirms the existing fundamental principles of professional conduct and ethics, but provides an enhanced and a more structured framework to assist public accountants to identify, evaluate and respond to threats to compliance with those fundamental principles. If identified threats are other than clearly insignificant, public accountants are required, where appropriate, to apply safeguards to eliminate the threats or reduce them to an acceptable level, such that compliance with the fundamental principles is not compromised.
1.6 The proposed Code places emphasis on a principles-based approach. The Committee believes that this is preferable to a rules-based approach to professional conduct and ethics which cannot provide for all circumstances. A rules-based approach may also lead to unquestioning compliance to the letter of a rule that may result in safeguards that are unnecessary, inappropriate or inadequate in meeting the spirit of the fundamental principles of professional conduct and ethics.
1.7 Consistent with the current ACRA Code, the finalised Code of Professional Conduct and Ethics will be issued as a schedule to the Rules.
1.8 IFAC has issued two exposure drafts of proposed revisions to the current IFAC Code of Ethics. The Ethics Sub-Committee will seek comments on these proposed revisions as a separate exercise to the present consultation.
Information for those wishing to submit comments
1.9 This document outlines the proposed Code, highlights the key differences between the proposed Code and the current ACRA Code, and seeks comments on specific questions.
1.10 Submitters should note that the intention is to adopt the IFAC Code as a baseline. While this document invites comments on individual sections of the proposed Code, this is for the purpose of determining whether further rules, guidance or clarifications are necessary in the Singapore context. It is not intended to seek comments on whether or not a particular provision of the IFAC Code should be adopted.
1.11 The Committee welcomes comments from public accountants and other stakeholders on specific questions relating to the following matters:
The proposed additional Singapore provisions, whether the proposed Code is clear and unambiguous, and whether additional Singapore provisions, guidance or clarifications are needed.
Certain provisions in the current ACRA Code do not have equivalent sections in the proposed Code. Comments are sought on whether it is appropriate to repeal certain of these provisions upon adoption of the proposed Code.
1.12 It would be helpful if submitters focused on the specific questions posed in the consultation document, however the Committee also welcomes comments on other matters relating to the proposed Code and its implementation.
Submission of Comments
1.13 Comments are helpful when they refer to specific paragraphs, include reasons for comments and, where appropriate, make specific suggestions for any proposed changes to wordings to enable the Committee to fully appreciate the submitter’s views. Where a submitter agrees with proposals, it will also be helpful for the Committee to be made aware of this view. It would be appreciated if comments are phrased as clearly and concisely as possible. Submitters should indicate their name, and, if any, the organisation which they represent.
1.14 As the exposure draft and consultation paper are only for the purposes of consultation, it would be inappropriate to use these documents for individual or business decisions. Additionally, the content of these documents should not be construed as any representation of actions that ACRA would undertake in future.
Period of Consultation and Feedback Channel
1.15 The exposure draft and consultation document are available for public consultation from 24 July 2007 to 24 September 2007.
1.16 Please send us your comments by email to http://www.acra.gov.sg/feedback (please type ‘Code of Ethics’ in the subject line).
Summary of Responses
As we will be publishing on ACRA’s website a summary of all comments received, we would like to highlight that all comments will be regarded as being on the public record unless a request for confidentiality is expressly indicated in your feedback.
TWO - OUTLINE of the Proposed Code
Conceptual Framework of the Proposed Code: Principles, Threats and Safeguards
2.1 The proposed Code is principles-based. To comply with the proposed Code, public accountants must assess whether any of five fundamental principles are threatened and, when they identify a threat, they should apply safeguards to eliminate the threat or reduce it to an acceptable level such that compliance with the fundamental principles is not compromised. Public accountants have an obligation to evaluate any threats to compliance with the fundamental principles if they know, or could reasonably be expected to know, of circumstances or relationships that may compromise compliance. The five fundamental principles are found in Part A.
2.2 Part B consists of application guidance that describes specific threats to the fundamental principles, and the corresponding safeguards that may be applied to address the threats. In some situations, the safeguards are compulsory, which may include rules prohibiting such situations in all cases. In other situations, a public accountant will need to exercise judgment to determine how to best deal with an identified threat. In exercising this judgment, a public accountant should consider what a reasonable and informed third party, having knowledge of all relevant information, including the significance of the threat and the safeguards applied, would reasonably conclude to be acceptable.
2.3 The application guidance and examples in Part B are not intended to be, nor should they be interpreted as, an exhaustive list of all circumstances that may create threats to compliance with the fundamental principles. Consequently, it is not sufficient for public accountants merely to comply with the examples presented; rather, they should apply the principles to the particular circumstances they encounter.
Three - Summary of KEY Changes and Consultation Questions
PART A – General Application
3.1 Part A of the proposed Code sets out five fundamental principles:
Professional Competence and Due Care
3.2 The Committee considers that Part A of the IFAC Code should be adopted in its entirety without Singapore modifications so as not to either add or detract from the IFAC principles, to avoid repetition, and to ensure the integrity of the remainder of the proposed Code which flows from the fundamental principles.
3.3 The principles in Part A of the proposed Code encompass the fundamental principles contained in Paragraph 1 ‘Fundamental Principles’ of the current ACRA Code, with the exception of paragraphs 1(6), 1(7), and 1(8):
1(6) Public accountants who assume responsibilities in respect of financial statements or as auditors shall observe the professional and technical pronouncements of the Oversight Committee and such other professional and technical pronouncements as the Oversight Committee may adopt from those issued by any other professional accountancy body.
1(7) Notwithstanding the generality of the foregoing, a public accountant shall also comply with any supplementary Guidelines on Professional Conduct issued from time to time by the Oversight Committee to clarify ambiguities or to deal with specific circumstances of universal application, and with any other guidelines on professional conduct as the Oversight Committee may adopt from those issued by any other professional accountancy body.
1(8) No public accountant shall be substantially engaged in any business other than that of a public accountant.
3.4 The matters in paragraphs 1(6) and 1(7) will be addressed in the Accountants (Public Accountants) Rules 2004 (the Rules) which require public accountants to comply with the PAOC’s auditing, professional and technical pronouncements.
3.5 The matters in paragraph 1(8) are addressed in the relevant provisions under the Accountants Act that deals with public accountants’ accounting entities. The issue is also dealt with in section 200.2 of the proposed Code, which states that a public accountant should not engage in any business, occupation or activity that impairs or might impair integrity, objectivity or the good reputation of the profession and as a result would be incompatible with the rendering of public accountancy services.
Proposal: To adopt Part A of the IFAC Code without additional Singapore provisions.
Question 1: Are there other matters of general principle, relevant to Singapore, not covered by Part A of the proposed Code? Please provide reasons for your comments.
PART B – Application Guidance
3.6 Part B provides guidance on the application of the fundamental principles. Part B includes an introduction, application in relation to specific areas, and an extensive section on independence in assurance engagements.
200 - Introduction
3.7 The introduction explains the threats and safeguards approach to application of the fundamental principles, and the main categories of threats to the fundamental principles. The threats are similar to those identified in paragraph 3 of the current ACRA Code.
3.8 The introduction outlines the main categories of safeguards that public accountants need to apply in order to eliminate the threats or reduce them to an insignificant level. Some of these safeguards are similar to the practices prescribed in the current ACRA Code.
Proposal: To adopt Section 200 of the IFAC Code without additional Singapore provisions.
Section 210: Professional Appointments
3.9 Section 210 deals with client and engagement acceptance, and changes in professional appointment. The current ACRA Code covers similar matters relating to:
professional behaviour, solicitation, encroachment and client referrals (paragraphs 25(1), 25(2) and 26); and
changes in professional appointments in respect of statutory audits of financial statements (paragraphs 25(3) to 25(6)).
Professional behaviour, solicitation, encroachment and client referrals -
3.10 Paragraphs 25(1), 25(2) and 26 of the current ACRA Code deal with the following matters:
25(1) No public accountant shall act in relation to another public accountant in any way or manner as to lower the dignity or honour of the profession or to discredit the profession.
25(2) No public accountant shall directly solicit or encroach upon the business of another public accountant.
26 No public accountant who receives an assignment by referral from another public accountant shall provide any other professional services to the referring public accountant’s client without informing the referring public accountant.
3.11 The IFAC Code does not deal with the above specific matters on client solicitation, encroachment and referrals, but rather, deals generally with behaviour that would bring the profession into dispute, for example the fundamental principle on Professional Behaviour, and Section 250 on Marketing Professional Services.
3.12 The Committee acknowledges the tension between professional behaviour with regard to matters on client solicitation, encroachment and referrals on the one hand, and on the other, ensuring healthy competition and free choice of services to clients. On balance, the Committee considers that the current paragraphs 25(1), 25(2) and 26 are sufficiently covered by the IFAC Code, and so does not propose to retain them in the proposed Code.
Proposal: Not to retain paragraphs 25(1), 25(2) and 26 of the current ACRA Code upon adoption of the proposed Code.
Question 2: Do you agree that paragraphs 25(1), 25(2) and 26 of the current ACRA Code should not be retained? Please provide reasons for your comments.
Changes in professional appointments in respect of statutory audits of financial statements
3.13 The IFAC Code provides guidance on changes in professional appointment in general in sections 210.10 to 210.18. It does not provide specific guidance on changes of auditors in respect of statutory audit engagements, which are currently found in paragraphs 25(3) to 25(6) of the current ACRA Code. The Committee considers that paragraphs 25(3) to 25(6) should be retained in the proposed Code to provide better specific guidance for changes of auditors in statutory audit engagements. This is to ensure consistency of practice and to provide certainty to public accountants wishing to accept a new client.
3.14 ACRA is aware of cases where public accountants incorrectly asserted that paragraph 25 prohibits a proposed auditor from accepting the audit appointment if he is unable to obtain the professional clearance set out in paragraph 25 from the existing auditor. In fact, the purpose of paragraph 25 is to provide a structured means for the proposed auditor to obtain relevant information to help him assess risks associated with accepting the proposed engagement. If the proposed auditor is unable to obtain the professional clearance set out in paragraph 25 from the existing auditor after carrying out the due process set out in the same paragraph, he may still accept the statutory audit engagement if he has satisfied himself of the risks of accepting the engagement through other appropriate means, in accordance with the Code.
3.15 In view of this, an additional paragraph has been included in the proposed Code to clarify this specific matter. The additional Singapore provisions should be read in conjunction with the IFAC-based paragraphs, and would read as follows:
SG210.17A Before accepting a nomination as auditor in a Statutory Audit, in every case the public accountant should undertake the following safeguards:
(a) communicate with the existing public accountant, if any, who is to be superseded; or
(b) enquire from such existing public accountant as to whether there is any professional or other reason for the proposed change of which he should be aware before deciding whether or not to accept the statutory audit appointment and, if there are such matters, request that existing public accountant to provide him with all the details necessary to enable him to come to a decision.
SG210.17B The existing public accountant, on receipt of communication referred to in paragraph SG210.16A, shall immediately:
(a) reply, in writing, advising whether there are any professional or other reasons why the proposed public accountant shall not accept the statutory audit appointment;
(b) if there are any such reasons or other matters which should be disclosed, ensure that he has the permission of the client to give details of this information to the proposed public accountant. If permission is not granted the existing public accountant shall report that fact to the proposed public accountant; and
(c) on receipt of permission from the client, disclose all information needed by the proposed public accountant to enable him to decide whether or not to accept the statutory audit appointment and discuss freely with the proposed public accountant all matters relevant to the appointment of which the latter should be aware.
SG210.17C If the proposed public accountant does not receive, within a reasonable time, a reply to his communication to the existing public accountant and he has no reason to believe that there are any exceptional circumstances surrounding the proposed change, he shall endeavour to communicate with the existing public accountant by some other means.
SG210.17D If the proposed public accountant is unable to obtain a satisfactory outcome pursuant to paragraph SG210.16C, he shall send a final letter by registered post, stating that he assumes there is no professional or other reason why he should not accept the statutory audit appointment and that he intends to do so. The proposed public accountant may accept the engagement if he is satisfied that there are no professional or other reasons for the proposed change after taking into account guidance set out in 201.10 to 210.18.
Proposal: To retain a revised version of paragraphs 25(3) to 25(6) of the current ACRA Code in the proposed Code
Question 3: Do you agree that the matters in paragraphs 25(3) to 25(6) on change of appointment of auditor pertaining to statutory audit engagements in the current ACRA Code should be retained in the proposed Code? Please provide reasons for your comments.
Section 220: Conflicts of Interest
3.16 Section 220 describes the threats related to conflicts of interests and the safeguards that public accountants should consider if a conflict of interest arises. Section 220 does not contain any additional Singapore provision.
Proposal: To adopt Section 220 of the IFAC Code without additional Singapore provisions.
Section 230: Second Opinions
3.17 Section 230 describes the threats related to provision of second opinions and the safeguards that public accountants should consider when asked to provide a second opinion. Section 230 does not contain any additional Singapore provisions.
Proposal: To adopt Section 230 of the IFAC Code without additional Singapore provisions.
Section 240: Fees and other types of remuneration
3.18 Section 240 deals with matters pertaining to the setting of fees, contingent fees and referral fees. The current ACRA Code deals with setting of fees in paragraph 23 and contingency fees in paragraph 18. The current ACRA Code also deals with profit sharing in paragraph 23, which the IFAC Code does not specifically cover.
3.19 Setting of fees – The provisions on setting of fees in the proposed section 240 differs from that in paragraph 23 of the current ACRA Code. Section 240.1 states that a public accountant may quote whatever fee deemed to be appropriate. The fact that one public accountant may quote a fee lower than another is not in itself unethical, as long as any threat to compliance with the fundamental principles has been addressed. For example, the public accountant must ensure that the engagement can be completed with professional competence and due care, and in accordance with applicable standards for the fee charged. In comparison, paragraph 23(1) of the current ACRA Code prescribes that fees charged should be a fair reflection of the value of the work performed taking into account four factors, as follows:
23 (1) Professional fees charged by public accountants should be a fair reflection of the value of the work performed for the client, taking into account —
(a) the skill and knowledge required for the type of work involved;
(b) the level of training and experience of the persons necessarily engaged in the work;
(c) the time necessarily occupied by each person engaged in the work; and
(d) the degree of responsibility and urgency that the work entails.
3.20 The Committee considers that the IFAC-based provisions sensibly targets the risks involved and should be sufficient without the need to carry over the existing provisions from the current ACRA Code.