Professional independence is considered to be crucial to the life of a professional accountant. Therefore guidance is given on the best code of conduct in situations where the accountants independence may be compromised or impaired.
It is undesirable for a practice to receive to significant a proportion of recurring fee income from a client or a group of connected clients. A new or old practice in decline may be unable to comply with the criteria. Therefore when an accountant finds himself with such a client he need not resign immediately but should in the first instance look for opportunities to reduce the significance of that client such as by looking for more work.
ii. Personal or family relationships
These relationships can impair independence. Therefore an accountant should take steps to ensure family or personal relationships do not interfere with objectivity in approach to his work.
iii. Financial involvement with a client.
- Beneficial shareholding: A partner in an accounting firm, spouse of such a partner and minor children of such partners should not have beneficial shares in an audit client. If appointed as auditor when possessing such shares the member should dispose of them at the earliest opportunity. If the company’s article of association require that the auditor has qualified shares then the member should take minimum number allowed. The shares cannot be used by the member in an annual general meeting to vote on the appointment of the auditor and his remuneration.
- Loans to and from client: An accounting firm should not accept loans from its clients or give loans to clients. This includes guarantees. A firm may, however accept a loan from a client if it is that clients’ ordinary course of business to give loans. Loans thereof should not be accepted on terms more favourable than those available to others.
iv. Goods and Services
Members should resist from accepting goods and services from the client on terms more favourable to the generality of the client’s employees. Undue hospitality poses a similar threat to a member’s independence.
v. Conflicts of interests.
- Provision of other services to clients; A member should be alert to the danger posed to his independence by providing accounting and other services which place him in an executive position to his client. A member should use different staff for those services and also that the client takes full responsibility for that work.
- Competing clients in conflict; the member should frankly disclose to both parties and advice them to choose another auditor and then disengage one of the appointments. However he can also provide advice to resolve the conflict.
- Receiverships and liquidation; If a company, a member is auditing goes into receivership, the member should not accept an appointment as a receiver - manager unless at least two years have elapsed. If there is a company which a member has been a receiver of and the receivership ends, a member who has the receiver should not accept an appointment unless two years have elapsed. A member who is a receiver of a company which goes into liquidation should not accept an appointment as liquidation of that company.
- Previous employment; A member who has been an employee of a company, having left that employment should not accept appointment as an auditor of that company until at least 2 years have elapsed.