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APES GN 40 Ethical Conflicts in the
Workplace - Considerations for
Members in Business
Prepared and issued by
Accounting Professional & Ethical Standards Board Limited
ISSUED: March 2012
Copyright © 2012 Accounting Professional & Ethical Standards Board Limited (“APESB”). All rights reserved. Apart
from fair dealing for the purpose of study, research, criticism and review as permitted by the Copyright Act 1968, no
part of these materials may be reproduced, modified, or reused or redistributed for any commercial purpose, or distributed to a third party for any such purpose, without the prior written permission of APESB.
Any permitted reproduction including fair dealing must acknowledge APESB as the source of any such material reproduced and any reproduction made of the material must include a copy of this original notice.
APES GN 40 Ethical Conflicts in the Workplace – Considerations for Members in Business Contents Paragraph Scope and application
Fundamental responsibilities of Members in Business
Conceptual framework approach
Threats and safeguards
Overview of APES 110 PART C: Members in Business
Potential conflicts arising from responsibilities to the Employer
Preparation and reporting of information to be used by internal and external parties............... 8 Member in Business’s responsibility to Act with sufficient expertise
Financial interests of a Member in Business
Inducements offered to a Member in Business
Disclosure of information and whistleblowing
Conformity with International Pronouncements Acknowledgements Bibliography: High-profile examples of poor ethical behaviour in the corporate world
1. Scope and application
1.1 Accounting Professional & Ethical Standards Board Limited (APESB) issues professional guidance note APES GN 40 Ethical Conflicts in the Workplace – Considerations for Members in Business (the Guidance Note). This Guidance Note supersedes GN 1 Members in Business Guidance Statement.
1.2 APES GN 40 provides guidance to Members in Business on the application of the
fundamental principles contained within Part A: General Application and Part C:
Members in Business of APES 110 Code of Ethics for Professional Accountants (the Code). The Guidance Note provides examples for Members in Business of situations that require professional judgment in the application of the principles of the Code.
1.3 Members in Business working in Australia should follow the guidance in APES GN 40 when they provide services to their Employer.
1.4 Members in Business working outside of Australia should follow the guidance in APES GN 40 to the extent to which they are not prevented from so doing by specific requirements of local laws and/or regulations.
1.5 The Guidance Note is not intended to detract from any responsibilities which may be imposed by law or regulation.
1.6 All references to Professional Standards and Guidance Notes are references to those provisions as amended from time to time.
1.7 Members in Business need to be familiar with relevant Professional Standards and Guidance Notes when providing Professional Services.
1.8 In applying the guidance outlined in APES GN 40, Members should be guided not merely by the words but also by the spirit of this Guidance Note and the Code.
For the purpose of this Guidance Note:
Acceptable Level means a level at which a reasonable and informed third party would be likely to conclude, weighing all the specific facts and circumstances, that compliance with the fundamental principles is not compromised.
Code means APES 110 Code of Ethics for Professional Accountants.
Employer within the context of this Guidance Note means an entity or person that employs, engages or contracts a Member in Business.
Member means a Member of a Professional Body that has adopted this Guidance Note as applicable to their Membership as defined by that Professional Body.
Member in Business means a Member employed or engaged in an executive or nonexecutive capacity in such areas as commerce, industry, service, the public sector, education, the not for profit sector, regulatory bodies or Professional Bodies, or a Member contracted by such entities.
Professional Bodies means the Institute of Chartered Accountants in Australia, CPA Australia and the Institute of Public Accountants.
Professional Services means services requiring accountancy or related skills performed by a Member including accounting, auditing, taxation, management consulting and financial management services.
Professional Standards means all standards issued by Accounting Professional & Ethical Standards Board Limited and all professional and ethical requirements of the applicable Professional Body.
Those Charged with Governance means the persons with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity. This includes overseeing the financial reporting process.
3. Fundamental responsibilities of Members in Business 3.1 The Code is the conceptual framework and foundation on which all APESB pronouncements are based. Compliance with and application of the Code is fundamental to the professional behaviour of Members in Business. Non-compliance with the Code can lead to disciplinary proceedings being initiated by the Professional Body to which the Member belongs.
3.2 Professional obligations and ethical requirements that Members in Business are required to comply with are based on the five fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour in the Code.
3.3 The term Professional Services is defined in the Code as services requiring accountancy or related skills performed by a Member including accounting, auditing, taxation, management consulting and financial management services. Whilst a number of these services are typically performed by Members in Public Practice, services performed by Members in Business are also captured by the definition of Professional Services. Such services typically include those performed by financial accountants, tax accountants, financial analysts, financial planners, management accountants, internal auditors and financial controllers.
3.4 A Member in Business who provides Professional Services is required to comply with Part A – General Application of the Code and Part C – Members in Business including Section 100 Introduction and Fundamental Principles and any relevant law or regulation.
Part C is specific to Members in Business and describes the application of the fundamental principles to some of the more commonly encountered situations that may create threats to compliance with the fundamental principles.
4. Conceptual framework approach
4.1 Members in Business may encounter situations that give rise to threats to compliance with the fundamental principles. This Guidance Note uses the framework in the Code to assist Members to identify, evaluate and respond to threats to compliance with the fundamental principles. Members are required to implement safeguards to eliminate the threats or reduce them to an Acceptable Level so that compliance with the fundamental principles is not compromised. The Guidance Note provides a range of examples dealing with a variety of circumstances in which threats may arise and provides guidance on safeguards that may be adopted. Members should use the framework to address ethical issues arising from their work at an early stage to enable them to adopt appropriate safeguards which are suitable to the circumstance.
4.2 When considering situations that threaten compliance with the fundamental principles, Members in Business need to retain their objectivity and should use the following
structured approach to ethical decision making:
i. Gather the facts and identify the problem or threat;
ii. Identify the fundamental principles involved;
iii. Identify the affected parties;
iv. Determine whether established organisational procedures and conflict resolution resources exist to address the threat to compliance with the fundamental principles;
v. Identify the relevant parties who should be involved in the conflict resolution process;
vi. Discuss the ethical issue and the conflict with the relevant parties, and in accordance with the prescribed procedures evaluate the significance of the threats identified and safeguards available;
vii. Consider courses of action and associated consequences;
viii. Consider whether to consult confidentially with external advisers such as an independent adviser, legal advisor and/or the Professional Body to which the Member belongs;
ix. Consider whether to consult Those Charged with Governance;
x. Decide on an appropriate course of action;
xi. Document all enquiries and conclusions reached; and xii. Implement the appropriate course of action. In the event that the Member believes that the threat to compliance with the fundamental principles has not been satisfactorily resolved, the Member should determine whether it is appropriate to resign.
The process to be followed as indicated above may vary with each particular circumstance and a flow diagram is set out below to provide guidance to a Member on how to arrive at an
appropriate course of action:
4.3 When resolving an ethical issue, a Member in Business should document the substance of the issue and details of any discussions held and conclusions reached concerning that issue. The Member should take qualitative as well as quantitative factors into account when evaluating the significance of an ethical issue, and be alert to the fact that reassessment of the issue may need to occur on an ongoing basis. If, after exhausting all relevant possibilities, the ethical issue remains unresolved, the Member should, where possible, refuse to remain associated with the matter creating the conflict.
The Member should determine whether, in the circumstances, it is appropriate to refuse to perform the duties in question or be associated with information the Member knows is misleading, or whether it is appropriate to resign altogether from the employing organisation.
4.4 The case studies in Section 13 illustrate the application of the fundamental principles and the types of safeguards that can be implemented. The case studies follow the structured approach noted above in analysing the relevant ethical considerations. These case studies are not intended to be, nor should they be interpreted as, an exhaustive list of all circumstances likely to be experienced by Members in Business that create threats to compliance with the fundamental principles of the Code. Consequently, it is not sufficient for Members to seek compliance in situations corresponding with these case studies. Members need to apply the principles of the Code to all situations facing them in which compliance with the fundamental principles of the Code are at risk.
5. Threats and safeguards Threats
5.1 Compliance with the Code may be threatened by a broad range of circumstances and relationships. Any given circumstance may create more than one threat, and the threats that arise may affect compliance with more than one fundamental principle. A Member in Business is required to implement safeguards to eliminate the threats or reduce them to an Acceptable Level so that compliance with the fundamental principles is not compromised.
Threats to the fundamental principles are discussed in Part A – General Application of 5.2
the Code. Threats fall into one or more of the following categories:
(a) Self-interest – the threat that a financial or other interest will inappropriately influence the judgment or behaviour of a Member in Business;
(b) Self-review – the threat that a Member in Business will not appropriately evaluate the results of a previous judgment or service performed by the Member or another individual within the Employer, on which the Member in Business will rely when forming a judgement as part of providing a current service;
(c) Advocacy – the threat that a Member in Business will promote the Employer’s position to the point that the Member’s objectivity is compromised;
(d) Familiarity – the threat that due to a long or close relationship with the Employer, a Member in Business will be too sympathetic to the Employer’s interests or will accept the Employer’s view on certain matters without sufficient scrutiny; and (e) Intimidation – the threat that a Member in Business will be deterred from acting objectively because of actual or perceived pressures, including attempts to exercise undue influence over the Member.
5.3 The Code classifies safeguards that may eliminate or reduce threats faced by Members
in Business to an Acceptable Level into two broad categories:
safeguards created by the profession, legislation or regulation; and safeguards in the work environment.
Examples of such safeguards are outlined in paragraphs 100.14 - 100.16 and 300.14 of the Code.
5.4 In addition to the categories above, safeguards may also be created by the Member in
Business. Such safeguards may include but are not restricted to:
keeping records of contentious issues and the action taken to resolve them;
maintaining a broader perspective on how similar organisations function through establishing business relationships with other professionals; and using an independent advisor.
5.5 Discussion of ethical issues with the Professional Body to which the Member in Business belongs is strongly encouraged as the Professional Bodies are able to provide valuable advice in line with the behaviour expected of their Members and within the limits of acceptable practice and the law.
6. Overview of APES 110 PART C: Members in Business
6.1 APES 110 Part C illustrates how the conceptual framework contained in APES 110 Part A is to be applied by Members in Business.