Other Codes of Conduct

Institute of Management Accountants Statement of Ethical Professional Practice

The Institute of Management Accountants (IMA) a professional association of management accountants and finance professionals, with over 100,000 members.  Management Accounting is typically defined as accounting within an organization, rather than external accounting and auditing done by Certified Public Accountants.  Thus, the IMA primarily serves accountants and finance professionals not in public practice.

Accountants working as internal accountants, controllers, and chief financial officers are often faced with a different type of ethical pressure.  The need for high ethics is as important as the ethics of accountants in public practice, but there are often additional pressures to present the company’s financial position and results of operations in a favorable manner.  Management accountants may receive pressure from non-accountants in the organization who do not share the accountant’s high ethics.  In some cases, management accountants may even be faced with a choice to violate their ethics or risk being fired from their job.  Even if their job is not at risk, the management accountant may feel that future promotions may be lost if they are “not a team player.”  This may cause career pressure to comply with unethical requests.

The IMA has developed the Statement of Ethical Professional Practice to guide management accountants.  The IMA Statement of Ethical Professional Practice is based on principles that are similar to the principles established by the AICPA.  The IMA principles include:

• Honesty
• Fairness
• Objectivity
• Responsibility

If an accountant is pressured to violate ethical principles, the accountant will not be able to use the defense that they were forced to do so.  The accountant is responsible for their actions, without regard to any actual, implied, or perceived pressure from higher level managers.  If the accountant chooses to succumb to the pressure and violate the ethical principles, they will personally be subject to professional and legal consequences.  In many cases the higher-level managers deny exerting such pressure, claim no knowledge of the acts, and allow the accountant to suffer the legal and professional consequences.  Accountants should always be aware that they are responsible for their own ethical conduct.  In some cases, it may be appropriate for the accountant to resign their position and seek other employment.

The IMA and AICPA codes of conduct differ in several key areas.  The AICPA principles are similar to those above but also include (1) serving the public interest, (2) exercising due care, and (3) scope and nature of services.  The difference in these principles warrants consideration.

The AICPA principle of serving the public interest is not present in the IMA principles.  The management accountant’s primary loyalty rests with their employer, not the public interest.  That does not mean that the management accountant should not consider the public interest, but only that the public interest is secondary to the loyalty owed the employer.  The IMA Statement of Ethical Professional Practice includes specific reference to “perform professional duties in accordance with relevant laws, regulations, and technical standards” and to “abstain from engaging in or supporting any activity that might discredit the profession.”  Any substantial violation of the public interest would likely also violate these two statements.

The AICPA principle of exercising due care is also not a specific IMA principle.  However, due care is inherently required under the IMA statements on competence.

Institute of Management Accountants Statement of Ethical Professional Practice

Members of IMA shall behave ethically. A commitment to ethical professional practice includes overarching principles that express our values, and standards that guide our conduct.

PRINCIPLES

IMA’s overarching ethical principles include: Honesty, Fairness, Objectivity, and Responsibility. Members shall act in accordance with these principles and shall encourage others within their organizations to adhere to them.

STANDARDS

IMA members have a responsibility to comply with and uphold the standards of Competence, Confidentiality, Integrity, and Credibility. Failure to comply may result in disciplinary action.

COMPETENCE

Each member has a responsibility to:

1. Maintain an appropriate level of professional leadership and expertise by enhancing knowledge and skills.
2. Perform professional duties in accordance with relevant laws, regulations, and technical standards.
3. Provide decision support information and recommendations that are accurate, clear, concise, and timely. Recognize and help manage risk.

CONFIDENTIALITY

Each member has a responsibility to:

1. Keep information confidential except when disclosure is authorized or legally required.
2. Inform all relevant parties regarding appropriate use of confidential information. Monitor subordinates’ activities to ensure compliance.
3. Refrain from using confidential information for unethical or illegal advantage.

INTEGRITY

Each member has a responsibility to:

1. Mitigate actual conflicts of interest. Regularly communicate with business associates to avoid apparent conflicts of interest. Advise all parties of any potential conflicts of interest.
2. Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
3. Abstain from engaging in or supporting any activity that might discredit the profession.
4. Contribute to a positive ethical culture and place integrity of the profession above personal interests.

 CREDIBILITY

Each member has a responsibility to:

1. Communicate information fairly and objectively.
2. Provide all relevant information that could reasonably be expected to influence an intended user’s understanding of the reports, analyses, or recommendations.
3. Report any delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law.
4. Communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity.
   

RESOLUTION OF ETHICAL CONFLICT

In applying the Standards of Ethical Professional Practice, the member may encounter unethical issues or behavior. In these situations, the member should not ignore them, but rather should actively seek resolution of the issue. In determining which steps to follow, the member should consider all risks involved and whether protections exist against retaliation.

When faced with unethical issues, the member should follow the established policies of his or her organization, including use of an anonymous reporting system if available.

If the organization does not have established policies, the member should consider the following courses of action:

• The resolution process could include a discussion with the member’s immediate supervisor. If the supervisor appears to be involved, the issue could be presented to the next level of management.
• IMA offers an anonymous helpline that the member may call to request how key elements of the IMA Statement of Ethical Professional Practice could be applied to the ethical issue.
• The member should consider consulting his or her own attorney to learn of any legal obligations, rights, and risks concerning the issue.

If resolution efforts are not successful, the member may wish to consider disassociating from the organization.

Institute of Internal Auditors Code of Ethics

Internal Auditing is done by employees inside an organization.  Despite their employment by the company they are auditing, internal auditors report to high levels of management or the Board of Directors to give them the ability to provide independent and objective reports on various operations within the organization.  Their work often analyzes operations at a much more detailed level than can be done by the external accountants (independent CPAs).  Projects typically include:

• Assessing internal controls and recommending improvements
• Assessing internal and external risks
• Monitoring compliance with laws and regulations
• “Benchmarking” organizational practices against the best industry practices
• Examining the effectiveness, efficiency, and economy of operations
• Evaluating existing and new technologies
• Evaluating the governance process, ethics policies, and other fundamental policies of the organization

The Institute of Internal Auditors (IIA) is an international association of internal auditors.  With over 185,000 members, the IIA is much larger than the Institute of Management Accountants, yet smaller than the American Institute of Certified Public Accountants.  Internal Auditors may earn the designation of Certified Internal Auditor (CIA) as well as several specialty certifications from the IIA.  In the year 2016, the IIA updated the International Professional Practice Framework, which includes the following:

• Mandatory Guidance:
  • Core Principles for the Professional Practice of Internal Auditing​
  • Definition of Internal Auditing
  • Code of Ethics
  • International Standards for the Professional Practice of Internal Auditing
• Recommended Guidance
  • Implementation Guidance
  • Supplemental Guidance

Each of the above is valuable for the internal auditor. This chapter focuses on the Code of Ethics, but students with a greater interest may wish to examine the full International Professional Practice Framework.

The full text of the IIA Code of Ethics can be found below:

INTRODUCTION TO THE CODE OF ETHICS

The purpose of The Institute’s Code of Ethics is to promote an ethical culture in the profession of internal auditing.

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

A code of ethics is necessary and appropriate for the profession of internal auditing, founded as it is on the trust placed in its objective assurance about governance, risk management, and control.

The Institute’s Code of Ethics extends beyond the Definition of Internal Auditing to include two essential components:

1. Principles that are relevant to the profession and practice of internal auditing.
2. Rules of Conduct that describe behavior norms expected of internal auditors. These rules are an aid to interpreting the Principles into practical applications and are intended to guide the ethical conduct of internal auditors.

“Internal auditors” refers to Institute members, recipients of or candidates for IIA professional certifications, and those who perform internal audit services within the Definition of Internal Auditing.

APPLICABILITY AND ENFORCEMENT OF THE CODE OF ETHICS

This Code of Ethics applies to both entities and individuals that perform internal audit services.

For IIA members and recipients of or candidates for IIA professional certifications, breaches of the Code of Ethics will be evaluated and administered according to The Institute’s Bylaws and Administrative Directives. The fact that a particular conduct is not mentioned in the Rules of Conduct does not prevent it from being unacceptable or discreditable, and therefore, the member, certification holder, or candidate can be liable for disciplinary action.

PRINCIPLES

Internal auditors are expected to apply and uphold the following principles:

• • The integrity of internal auditors establishes trust and thus provides the basis for reliance on their judgment.

• • Internal auditors exhibit the highest level of professional objectivity in gathering, evaluating, and communicating information about the activity or process being examined. Internal auditors make a balanced assessment of all the relevant circumstances and are not unduly influenced by their own interests or by others in forming judgments.
• Confidentiality
  • Internal auditors respect the value and ownership of information they receive and do not disclose information without appropriate authority unless there is a legal or professional obligation to do so.

• • Internal auditors apply the knowledge, skills, and experience needed in the performance of internal auditing services.

RULES OF CONDUCT

1. Integrity

Internal auditors:

1.1.  Shall perform their work with honesty, diligence, and responsibility.

1.2. Shall observe the law and make disclosures expected by the law and the profession.

1.3. Shall not knowingly be a party to any illegal activity, or engage in acts that are discreditable to the profession of internal auditing or to the organization.

1.4. Shall respect and contribute to the legitimate and ethical objectives of the organization.

2. Objectivity
   Internal auditors:

2.1. Shall not participate in any activity or relationship that may impair or be presumed to impair their unbiased assessment. This participation includes those activities or relationships that may be in conflict with the interests of the organization.

2.2 Shall not accept anything that may impair or be presumed to impair their professional judgment.

2.3 Shall disclose all material facts known to them that, if not disclosed, may distort the reporting of activities under review.

3. Confidentiality
   Internal auditors:

3.1 Shall be prudent in the use and protection of information acquired in the course of their duties.

3.2 Shall not use information for any personal gain or in any manner that would be contrary to the law or detrimental to the legitimate and ethical objectives of the organization.

4. Competency
   Internal auditors:

4.1. Shall engage only in those services for which they have the necessary knowledge, skills, and experience.

4.2 Shall perform internal auditing services in accordance with the International Standards for the Professional Practice of Internal Auditing.

4.3 Shall continually improve their proficiency and the effectiveness and quality of their services.

Comparison of Ethical codes of the AICPA, IIA, and IMA

In this and prior chapters we have examined various codes of conduct that apply to accountants, independent auditors, and internal auditors in the United States.  These separate ethical standards have been adopted by different professional groups to meet the unique needs of each group.  While there are differences, they share common moral values including:

• Integrity
• Professional competence
• Credibility, often requiring objectivity
• Confidentiality

The details of each ethical code differ slightly, but the fundamental principles are very similar.  Professional accountants are in the business of providing information to their employers, clients, regulators, and the public.  This information is only valuable if it is reliable.  The information is only reliable if the accountant or auditor has great integrity, competence, credibility, and objectivity.   Because of the sensitive nature of the information there is often a need for confidentiality.

Despite the similarities of these ethical codes, there are unique differences which are necessary for the varying types of work done by accountants and auditors.

The work product determines independence and loyalty

The work product for an independent auditor will be relied upon by investors, creditors, regulators, economists, analysts, and government agencies; this requires independence.  However, the work product of internal auditors and accountants is intended for use only by their employer.   Independence is not an attribute of internal accountants and auditors– their loyalty is with their employer.  Despite this lack of independence, internal accountants and auditors must still be objective and exhibit high integrity.

The nature of the work determines confidentiality 

Although an independent auditor has a duty to the public, the auditors also owe a duty of some confidentiality to the client.  Independent auditors expect their report to be shared with the third parties, but they do not reveal client information.  The information gathered by an auditor could be used by competitors, litigation opponents, and other parties whose interests are in conflict with the audit client.  Independent auditors must treat client information as confidential unless the client permits release of the information or the auditor is required to release information.  Internal auditors and accountants have primary loyalty to their employer and must treat all information as confidential.  The rare exceptions to confidentiality occur when the internal auditor or accountant becomes aware of criminal activity.  If the employer takes no action, the internal auditor or accountant may disclose such activity to the appropriate law enforcement agency.

Convergence of U.S and International Accounting and Auditing Standards

 The accounting and auditing standards followed in the United States have adapted to changing needs and served the domestic economy well.   Other countries have used accounting and auditing principles that best meet their needs.  In an increasingly global economy, these varying standards have been a burden to international companies, investors, and creditors.   This has resulted in an international effort to create common standards.

 Accounting Standards

The International Accounting Standards Board (IASB) was formed in 2001 to create and promote a common set of International Financial Reporting Standards (IFRS).  Today over 140 countries have adopted IFRS.  There are substantial differences between IFRS and U.S. GAAP.  Efforts are underway to unite U.S. GAAP and IFRS through “convergence” and “harmonization.”   The ultimate goal is to have one set of accounting standards.  New pronouncements from FASB and IASB are created with the intent of convergence, using common underlying principles.  The Securities and Exchange Commission (SEC) has announced its intent to adopt IFRS in the next few years.  Foreign companies listed on U.S. stock exchanges are now allowed to file their required annual report with the SEC in IFRS format, rather than U.S. GAAP.  While full convergence is still a few years away, substantial progress has been made.

Auditing Standards

Substantial convergence of auditing standards has already occurred.  Audits of publicly traded companies follow new audit standards issued by the Public Company Accounting Oversight Board (PCAOB) in 2017.  All other audits in the U.S. follow audit standards issued by the Auditing Standards Board (ASB).  The ASB has adopted international auditing standards and is in the process of reorganizing the auditing standards.  Full convergence to International Auditing Standards will occur if the PCAOB joins the ASB in adopting the international standards.

Ethical Standards

Convergence of the International Code and the AICPA Code has already occurred. The AICPA is a member of the International Ethics Standards Board for Accountants (IESBA) and there is a continuing effort to keep the AICPA Code consistent with the International Code.  The IMA and IIA are not members of the IESBA.  While there is no convergence by design, the IMA and IIA codes are very consistent with the International Code.

The International Code of Ethics for Professional Accountants

The International Code of Ethics is relevant to accountants and auditors in the United States.

Currently U.S. accountants and auditors must comply with the individual codes of conduct issued by the AICPA, IMA, and IIA.  There is a strong relationship between the International Code and the AICPA Code.  The AICPA is a member of the International Ethics Standards Board for Accountants (the organization that establishes the International Code).  As such, there is a continuing effort to keep the AICPA Code consistent with the International Code.

 The International Ethics Standards Board for Accountants and the Code

The International Ethics Standards Board for Accountants (IESBA) is responsible for creating a common international set of ethical principles for accountants and auditors.  The IESBA created the International Code of Ethics for Professional Accountants, which became effective in 2006 and has been revised since then.  The International Code was developed to serve as a minimum set of ethical principles.  Countries and professional organizations that have adopted the international code can also have their own codes which are more restrictive.

Structure of the Code

The International Code of Ethics is comprised of three primary sections.  Section A provides the foundational principles for the code and is referred to as the “general application of the code.”  This section establishes the five underlying principles and describes them in detail.  Section B provides detailed guidance for “professional accountants in public practice” and section C is for “professional accountants in business.”   Section B for “professional accountants in public practice” is the largest portion of the code in order to address many of the issues potentially encountered by an independent auditor.

Principles of the International Code

The International Code is built on a set of “fundamental principles.”  These principles are very similar to the principles in the codes of conduct from the AICPA, IIA, and IMA.  The principles include:

• Integrity
  • A professional accountant should be straightforward and honest in all professional and business relationships.
• Objectivity
  • A professional accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgments.
• Professional Competence and Due Care
  • A professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments in practice, legislation and techniques. A professional accountant should act diligently and in accordance with applicable technical and professional standards when providing professional services.
• Confidentiality
  • A professional accountant should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of the professional accountant or third parties.
• Professional Behavior
  • A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession.

Although the principles are similar to those of the AICPA, IIA, and IMA, the International Code applies these principles to a broader range of issues than any of the other individual codes.

Threats and Safeguards

The International Code addresses general circumstances that may cause threats to the accountant or auditor’s ability to comply with the Code.  The following are threats described in the code:

• Self-interest threats which may occur as a result of the financial or other interests of a professional accountant or of an immediate or close family member;
• Self-review threats which may occur when a previous judgment needs to be reevaluated by the same professional accountant responsible for that judgment;
• Advocacy threats which may occur when a professional accountant promotes a position or opinion to the point that subsequent objectivity may be compromised;
• Familiarity threats which may occur when, because of a close relationship, a professional accountant becomes too sympathetic to the interests of others; and
• Intimidation threats which may occur when a professional accountant may be deterred from acting objectively by threats, actual or perceived.

The Code recognizes that certain safeguards may reduce the threats to compliance with the code.  The two basic types of safeguards are:

1. Safeguards created by the profession, legislation or regulation including

• • 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 in the work environment – covered in detail in other sections of the Code.

Ethical Conflict Resolution

Sections 100.16 through 100.21 of the International Code provides robust guidance on how to resolve an ethical conflict.  Students are encouraged to review the details of this portion of the Code, presented below:

100.16 In evaluating compliance with the fundamental principles, a professional accountant may be required to resolve a conflict in the application of fundamental principles.

100.17 When initiating either a formal or informal conflict resolution process, a professional accountant should consider the following, either individually or together with others, as part of the resolution process:

(a) Relevant facts;

(b) Ethical issues involved;

(c) Fundamental principles related to the matter in question;

(d) Established internal procedures; and

(e) Alternative courses of action.

Having considered these issues, a professional accountant should determine the appropriate course of action that is consistent with the fundamental principles identified. The professional accountant should also weigh the consequences of each possible course of action. If the matter remains unresolved, the professional accountant should consult with other appropriate persons within the firm or employing organization for help in obtaining resolution.

100.18 Where a matter involves a conflict with, or within, an organization, a professional accountant should also consider consulting with those charged with governance of the organization, such as the board of directors or the audit committee.

100.19 It may be in the best interests of the professional accountant to document the substance of the issue and details of any discussions held or decisions taken, concerning that issue.

100.20 If a significant conflict cannot be resolved, a professional accountant may wish to obtain professional advice from the relevant professional body or legal advisors, and thereby obtain guidance on ethical issues without breaching confidentiality. For example, a professional accountant may have encountered a fraud, the reporting of which could breach the professional accountant’s responsibility to respect confidentiality. The professional accountant should consider obtaining legal advice to determine whether there is a requirement to report.

100.21 If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, a professional accountant should, where possible, refuse to remain associated with the matter creating the conflict. The professional accountant may determine that, in the circumstances, it is appropriate to withdraw from the engagement team or specific assignment, or to resign altogether from the engagement, the firm or the employing organization.

Conclusion

There are many different ethical codes for accountants and auditors.  We have explored

• The AICPA Code of Conduct, which is primarily for CPAs with a significant focus on independent accountants/auditors,
• The IMA Statement of Ethical Professional Practice, which is focused on accountants within an organization,
• The IIA Code of Ethics, which is designed for internal auditors, and
• The International Code of Ethics for Professional Accountants, which attempts to meet the needs of all accountants and auditors.

The International Code is an excellent ethical tool and should be considered by all U.S. accountants and auditors.  If the professional accountant is in compliance with the AICPA, IIA, or IMA code they will also be compliant with the International Code.  The International Code serves as an excellent added resource for evaluating ethical threats and resolving ethical conflicts.