3.2 Fundamental principles, threats and safeguards

The International Ethics Standards Board for Accountants (IESBA) Code of Ethics for Professional Accountants establishes five fundamental principles that guide the behavior and decision-making of professional accountants. These principles are integrity, objectivity, professional competence and due care, confidentiality, and professional behavior.

1. Integrity: Professional accountants are expected to be honest, straightforward, and trustworthy. They should act with integrity and avoid any actions that may compromise their professional reputation or the reputation of the accounting profession as a whole.
2. Objectivity: Professional accountants must maintain objectivity and avoid conflicts of interest in their professional activities. They should not allow personal or financial interests to unduly influence their judgments and decisions. Objectivity is crucial in providing impartial and unbiased advice and services to clients or employers.
3. Professional Competence and Due Care: Professional accountants are expected to possess the necessary knowledge, skills, and expertise to perform their professional responsibilities competently. They should continually update their professional knowledge and skills to stay abreast of developments in their field. Professional accountants should also exercise due care, which involves performing professional services diligently, with thoroughness and professional skepticism.
4. Confidentiality: Professional accountants have a duty to maintain the confidentiality of information obtained during the course of their professional activities. They should not disclose confidential information without proper authorization, unless there is a legal or professional duty to do so. Confidentiality is vital in maintaining trust and ensuring the privacy and security of sensitive information.
5. Professional Behavior: Professional accountants should conduct themselves in a manner that upholds the reputation and dignity of the accounting profession. They should comply with relevant laws, regulations, and technical standards, and avoid any behavior that could undermine public trust in the profession. Professional accountants should also promote ethical conduct among their colleagues and subordinates.

Threats to compliance with these fundamental principles can arise in various forms. The IESBA identifies the following categories of threats:

1. Self-Interest Threat: The threat that a financial or other personal interest might compromise objectivity or professional judgment.
2. Self-Review Threat: The threat that a previous judgment or opinion could be re-evaluated by the same individual.
3. Advocacy Threat: The threat that a professional accountant will promote a client’s or employer’s interests to the point where professional judgment is compromised.
4. Familiarity Threat: The threat that, due to a close relationship, a professional accountant will be too sympathetic to the interests of others, impairing objectivity.
5. Intimidation Threat: The threat of undue influence that might compromise professional judgment.

To mitigate these threats and ensure compliance with the fundamental principles, professional accountants are required to apply safeguards. Safeguards can be categorized into three groups:

1. Safeguards created by the profession, legislation, or regulation: These include professional standards, education and training requirements, and external review processes.
2. Safeguards in the work environment: These involve implementing appropriate organizational policies and procedures, such as a strong ethical culture, effective governance, and oversight mechanisms.
3. Safeguards implemented by the individual accountant: These include maintaining professional competence, exercising professional skepticism, and consulting with colleagues or superiors when facing ethical dilemmas.