Which one of the following is not a safeguard created by the profession, legislation or regulation

By Ann Buttery, Head of Ethics, ICAS Policy Leadership

30 September 2019

Ann Buttery reports on one of the main changes to the ICAS Code of Ethics, which takes effect from 1 January 2020

ICAS is adopting a new Revised and Restructured Code of Ethics with effect from 1 January 2020 which replaces the previous version (applicable from 1 November 2017).

The ICAS Code of Ethics is substantively based on the International Ethics Standards Board for Accountants (IESBA) Code of Ethics.

IESBA has undertaken a project to completely redesign its Code of Ethics. IESBA’s intention behind this restructuring of the Code was not to fundamentally change the substance of the Code, but to improve its clarity thereby making it more user friendly.

The main changes in the Code are in the following areas:

• The structure of the Code
• An enhanced conceptual framework
• Safeguards – a revised definition
• Inducements (including gifts and hospitality) – inclusion of a new intent test
• New and revised sections for Professional Accountants in Business (PAIBs) on pressure to breach the fundamental principles and preparation and presentation of information
• Documentation, including written confirmation of fee arrangements
• Objectivity - loans and guarantees with clients

This article focuses on the change to the definition of Safeguards within the 2020 Code. Separate articles discuss the other main changes to the Code.

Safeguards – change in definition

Once of the main changes in the 2020 ICAS Code of Ethics is that it is no longer the case that “conditions, policies and procedures created by the profession, legislation or regulation” are considered to be “safeguards”.

In the previous Code of Ethics “safeguards” were defined as follows:

“100.13 Safeguards are actions or other measures that may eliminate threats or reduce them to an acceptable level. They fall into two broad categories:

(a) Safeguards created by the profession, legislation or regulation; and
(b) Safeguards in the work environment.

100.14 Safeguards created by the profession, legislation or regulation include:

• Educational, training and experience requirements for entry into the profession.
• Continuing professional development requirements.
• Corporate governance regulations.
• Professional standards.
• Professional or regulatory monitoring and disciplinary procedures.
• External review by a legally empowered third party of the reports, returns, communications or information produced by a professional accountant.”

“Safeguards” are now defined in the restructured Code in Section 120.10 A2 as follows:

“Safeguards are actions, individually or in combination, that the professional accountant takes that effectively reduce threats to compliance with the fundamental principles to an acceptable level.”

The previous Code considered “conditions, policies and procedures” created by the profession, legislation or regulation to be “safeguards”. CAs need to be aware that this is no longer the case in the new restructured Code.

IESBA believes that whilst the existence of these “conditions, policies and procedures” might help with the identification of threats, and the evaluation of whether a threat is at an acceptable level, when threats are not at an acceptable level, the conceptual framework now requires the accountant to address those threats by performing a specific action to reduce the threat to an acceptable level.  These general “conditions, policies and procedures” previously considered to be “safeguards” are not the specific actions now required by the Code.

Instead, the Code now provides examples throughout the Code of specific actions that might be safeguards to address threats to compliance with the fundamental principles.  For example:

• to address a self-interest threat, using an appropriate reviewer, who is not part of the team, to review the work performed; or
• to address the threat created by the offering or accepting of inducements, registering the inducement in a log maintained by the employing organisation of the accountant.

This new approach is explained in paragraph 7 of the “Guide to the Code”:

“The conceptual framework recognises that the existence of conditions, policies and procedures established by the profession, legislation, regulation, the firm, or the employing organisation might impact the identification of threats.  Those conditions, policies and procedures might also be a relevant factor in the professional accountant’s evaluation of whether a threat is at an acceptable level.  When threats are not at an acceptable level, the conceptual framework requires the accountant to address those threats. Applying safeguards is one way that threats might be addressed. Safeguards are actions, individually or in combination, that the professional accountant takes that effectively reduce threats to an acceptable level.”